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America has just reported a record rate of GDP growth. Now prepare for the delay



There is much to celebrate on Thursday’s GDP report, which shows that the US economy grew at a record annual rate of 33.1% in the third quarter. This is proof of the powerful one or two blows of fiscal stimulus and easy money from the Federal Reserve. And it reflects the recovery of much of the US economy.
Unfortunately, there are real obstacles ahead that will slow recovery, perhaps seriously. Some economists even fear that the economy will start to shrink again, starting a double recession.

Growing coronavirus infections will slow growth this fall and winter. Hotels, restaurants, cinemas, airlines and other businesses affected cannot fully recover when the pandemic worsens.

The failure of Congress and the Trump administration to reach a stimulus deal means that more small businesses are sure to fail, state and local layoffs could accelerate, and there are no inspections of incentives to ease the pain for consumers any time soon.

“Without additional fiscal assistance by 2021

, a poorly managed health situation and election uncertainty could lead to a long winter,” Gregory Daco, the chief economist at Oxford Economics, wrote in a report Monday.

“Very unstable” perspective

Economists are preparing for the inevitable delay. In the last six weeks, Newcast’s National Bank’s GDP model has now halved its annual growth forecast to just 3.5 percent in the fourth quarter. This will mark a sharp slowdown in the blockbuster summer GDP report.

Jefferies is even more pessimistic, forecasting annual growth of only 2% in the last three months of the year. This is because the premature withdrawal of fiscal stimulus is likely to hit consumer spending, the biggest driver of the economy and the brightest spot lately.

“The outlook for Q4 is very volatile in our view,” Aneta Markovska, chief financial economist at Jefferies, wrote in a customer report Thursday. “The economy has already lost a lot of momentum over the summer.”

The return to normal index, created by CNN Business and Moody’s Analytics, fell below 60% in early April. By August, it had recovered quickly to about 80%. But it hasn’t moved since.
Similarly, CNN’s economic recovery tracker shows that hotel occupancy is still 31% below pre-crisis levels. U.S. airports handle less than half of the passengers they have made so far in 2019.

The risk of a double recession is real

And these trends can be reversed as countries and cities try to combat the spread of the pandemic. Chicago and Newark have already announced new restrictions. Germany and France apply partial blockades. Disneyland Paris stops again.

“The road ahead will inevitably be a difficult struggle,” Siema Shah, chief strategist at Principal Global Investors, said in a report Thursday. “With growing cases of viruses and the new fiscal package yet to come, economic concerns are resurfacing.”

That is why some economists believe that the recovery will stop.

“We’re going back to recession as we talk,” Daniel DiMartino Booth, CEO and chief strategist at Quill Intelligence, told CNN Business this week.

Jeff Hall, managing economist at Refinitiv IFR, warns that there is a “high probability of negative growth” in the fourth quarter, perhaps even a double-digit decline in GDP, as COVID cases rise and new constraints are imposed.

Trump is taking credit for

Even the housing market, perhaps the hottest part of the economy, is showing signs of cooling.

Upcoming home sales fell unexpectedly in September, according to new issues released Thursday. This marks the first drop since April and comes despite record low interest rates.

Ian Shepardsson, chief economist at Pantheon Macroeconomics, is more nervous around the beginning of 2021 than at the end of this year.

“We are concerned that zero growth may be observed in the first quarter,” Shepardson wrote in a report, “unless new incentives are adopted almost immediately after the opening on January 20.”

When will the stimulus arrive?

That is why the election result will play a key role in the recovery.

If Democrats clean up the election, Jefferies expects a massive $ 3.5 trillion fiscal stimulus plan. That would lead to a stronger recovery, Jefferies said, with GDP growing by 5.5 percent in 2021.

But the size of the tax stimulus package would be smaller, perhaps much smaller, if Democrats and Republicans split control of Congress and the White House. Such a scenario would lead to GDP growth more gradually, Jeffries said.

Wall Street is scary, but you had to see the decline of the coronavirus coming

Whoever responds will face a huge challenge: The US economy has still cut nearly 11 million jobs since the pandemic. JPMorgan does not see a full recovery of jobs until 2022.

“The easy part of the economic recovery is over,” said Lauren Goodwin, an economist at New York Life Investments.


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