WASHINGTON: The US economy is expected to reach pre-Covid-19 levels within a year as President Joe Biden’s planned fiscal package helps boost economic activity, but it’s likely to take over a year for unemployment to fall to early 2020 levels, a Reuters poll showed.
After a pandemic-led 2020, confidence in this year’s recovery has soared with the growth outlook upgraded in the February 8-11 poll of nearly 120 economists, driven by the proposed $1.9 trillion fiscal stimulus package.
Over 90 per cent, or 51 of 56 economists in response to an additional question said the US economy would reach pre-Covid-19 levels within a year, including 23 respondents expecting it within six months.
“Optimism towards the economic recovery has raised expectations for future growth and inflation.
The success of the vaccine deployment and its efficacy will be huge in determining whether the economic forecasts become reality’’, said Beata Caranci, chief economist at TD Bank Group.
“Over the last few months, the changes to the forecast have favored a more rapid economic recovery. For the sake of the economy, we hope it continues to surpass our expectations.”
The US economy, which recovered at an annualised pace of 33.4 per cent in the third quarter from a record slump of 31.4 per cent in the second quarter, grew 4.0 per cent in the fourth quarter, the poll found.
While the economy was forecast to slow and grow 2.8 per cent this quarter, it was better than 2.3 per cent predicted in January.
The economy was then expected to accelerate and grow 6.0 per cent, 6.3 per cent and 4.6 per cent in the next three quarters, an upgrade from 4.3 per cent, 5.1 per cent and 4.0 per cent predicted for those periods last month.
For the full year, growth was forecast to average 4.7 per cent in 2021 and 3.5 per cent next year, an upgrade from 4.0 per cent and 3.3 per cent expected previously.
“While there are obvious risks that virus mutations deliver setbacks or problems arise with the vaccination programme, we think the positives outweigh the negative risks’’, said James Knightley, chief international economist at ING.
“Consequently 5 per cent growth looks achievable this year and this is before we consider the potential boost from President Biden’s Build Back Better infrastructure and energy plan.”
Still, all but one of 54 economists with a view said it would take more than a year for the US unemployment rate to reach pre-Covid-19 levels. That includes 33 economists who expected it to take more than two years.
“The recovery in jobs may take a little more time due to uncertainty over potential structural changes in the economy — home working meaning less people in major cities and perhaps less need for bars, restaurants, retail workers as a result’’, said ING’s Knightley.
“Conversely, maybe more workers are needed outside of these areas. Getting a good understanding will take time.”
Apart from the downside economic risks from the virus, relations with trading partners was expected to play a major role, with China particularly in focus.
The US president and his Chinese counterpart, Xi Jinping, held their first telephone call as leaders this week, with Biden saying a free and open Indo-Pacific was a priority and Xi warning confrontation would be a “disaster” for both nations.
When asked what would happen to US-China trade relations this year, nearly 90 per cent or 46 of 52 economists said they would stay the same. Only six respondents said they would improve; none expected them to worsen.“The US and China will remain locked in global trade and technology competition over the near term despite the change in administration’’, said Scott Anderson, chief economist at Bank of the West. — Reuters
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