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
“Very unstable” perspective
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 risk of a double recession is real
“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.
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.
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.