More Vaccinations, More Stimulus, More Sanity: A Guide to 2021
Doses of the Moderna Inc. Covid-19 vaccine at the Delta Health System The Medical Center drive-thru site in Greenville, Mississippi, U.S. (Photographer: Rory Doyle/Bloomberg)

More Vaccinations, More Stimulus, More Sanity: A Guide to 2021


As the coronavirus spread beyond China last spring, forecasters abruptly added two percentage points to their growth predictions for 2021. It was as if they had turned into a chorus of red-headed Orphan Annies singing, “I love ya, tomorrow.”

Their upgrades didn’t signify optimism, though. They were a consequence of the downturn the forecasters were expecting for 2020. With a deep recession as the new baseline, the partial rebound they anticipated would represent a big year-over-year percentage increase in output.

And here we are. Covid-19 is claiming more lives than ever, and vaccines are rolling out more slowly than expected, so economic activity this year will track well below its pre-pandemic trajectory. But because it won’t be as depressed as last year, on paper 2021 will look like a blockbuster. Bloomberg Economics is forecasting a 4.9% increase in the world’s gross domestic product and a 3.5% increase for the U.S.—the strongest since 2005. There’s less here than meets the eye.

Economic growth is hard to predict even in a normal year. It’s infinitely harder with a pandemic raging. Vaccines were developed in record time. But more contagious strains of Covid are spreading rapidly, vaccine distribution is proving problematic, and a lot of people still aren’t taking precautions for themselves and those around them. “There will be bumps along the way,” Bloomberg Economics writes in its global outlook, understatedly.

More Vaccinations, More Stimulus, More Sanity: A Guide to 2021

To reflect the greater-than-usual uncertainty, this year we’re showing a range of estimates for country-by-country growth: the lowest and highest forecasts among economists surveyed by Bloomberg, along with the median of those forecasts and the predictions of the professional economists who work for Bloomberg Economics, a sister organization of Bloomberg News. Even this range doesn’t capture all the unknowns. Any given country could do worse than the lowest point forecast for it or better than the highest.

There are few certainties about 2021, aside from eclipses and meteor showers. Raul Castro is slated to step down as the first secretary of Cuba’s Communist Party, ending 62 years of rule by him and his late brother, Fidel. Angela Merkel, Europe’s most powerful leader since 2005, will retire as chancellor of Germany after federal elections scheduled for Sept. 26. There will also be important elections in Ethiopia, Hong Kong, Iran, Iraq, Israel, the Netherlands, and Peru. Japan is debating whether it will be safe to host the 2020 Summer Olympics— make that the 2021 Summer Olympics.

Overshadowing everything is SARS-CoV-2, a shape-changing foe that’s killed more than 2 million people, including more than 400,000 in the U.S. A highly infectious variant discovered in the U.K., named B117, has been found in more than 50 countries. In the U.S., health officials recently said it could be the dominant source of infection as soon as March.

Local and national governments are ordering lockdowns to keep soaring infection rates from overwhelming hospitals. That’s a blow to economic growth. One indication in the U.S. is that the Federal Reserve Bank of Dallas’s national index of mobility and engagement, based on mobile device data, has sagged after improvement last summer and fall.

Less obvious is the scarring that Covid causes. Children who are falling behind in school may never completely catch up. And displaced workers may have trouble fitting into the post-pandemic workplace, because their skills have atrophied or are no longer in demand.

It’s dawning on lots of unemployed people that their temporary layoffs are, in fact, permanent. True, many have been called back to work. In the U.S. the number of people who say they’re on a temporary layoff fell from 18 million in April to 3 million in December. But over that same period, the number who say their unemployment is not temporary rose 60% to more than 4 million, which outside of the period since September is the highest number since 2014, in the aftermath of the global financial crisis.

Job losses have been greatest in the lowest-paid occupations. Federal Reserve Governor Lael Brainard said on Jan. 13 that the unemployment rate for people in the bottom quarter of the wage scale is “likely above 20%,” compared with a jobless rate below 5% for people in the top quartile.

More Vaccinations, More Stimulus, More Sanity: A Guide to 2021

As with workers, so with companies: Some businesses are never coming back, because Covid has permanently changed the way we do things. That will become obvious this year when the economic tide begins to rise but many businesses—say, office-space leasing—don’t float with it.

This raises the question of whether it’s a mistake for governments to prop up companies with broken business models. “Bailout money should be used to bridge sustainable businesses that became temporarily unstable due to the pandemic, so we don’t impair our economy’s capacity,” Vikram Mansharamani, a lecturer at Harvard’s Paulson School of Engineering and Applied Sciences, wrote in an email.

It’s hard to believe that as recently as New Year’s Eve, people around the world were saying good riddance to 2020 and toasting what they thought would be a much better 2021. In the world’s biggest economy, it took only six days for the new year to prove it could be just as bad as the old one. The violent invasion of the Capitol incited by President Trump did what may prove to be lasting damage to America’s democratic institutions and its standing in the world. (What’s more, the riot was perceived as a smashing success by right-wing extremists and therefore could inspire more attacks.) A day later, the Covid Tracking Project showed record daily fatalities in the U.S.; a day after that, weekly initial claims for unemployment insurance reached their highest level since August.

The American public is being ravaged by two viruses, one attacking bodies and one attacking minds. People are afraid of getting sick yet are frustrated with Covid shutdowns. Some react with resentment, suspicion, and increasingly unhinged behavior—invading the nation’s Capitol, for example. “Everyone reacts differently to stressful situations,” the Centers for Disease Control and Prevention wrote in a health bulletin in December.

More Vaccinations, More Stimulus, More Sanity: A Guide to 2021

The outlook for the U.S. this year hinges on whether President Biden can clear the miasma. Fixing the health crisis could ease the political and economic ones. Biden’s first shot is a $1.9 trillion coronavirus relief bill that includes $1,400 payments to individuals; supplementary unemployment benefits; help for low-income families; raising the federal minimum wage to $15 an hour; and assistance to state and local governments in distributing vaccines and readying schools for in-classroom instruction.

Political passions might cool, at least a bit, if the virus is suppressed and the economy recovers. But the boldness and breadth that make the $1.9 trillion bill popular with Democrats could doom it with Republicans, who are almost neck-and-neck with Dems in the House and could block most of Biden’s wish list in the Senate with a filibuster. Bloomberg Economics predicted on Jan. 15 that the bill will be whittled down to $1 trillion, still a substantial sum. That “could be enough to push economic growth above 5% this year, compared with our current baseline of 3.5%,” the economists said.

The flailing in Washington and state capitals looks even worse when juxtaposed with the success of China, which clamped down on Covid with compulsory mask-wearing, isolation of the sick, and effective contact tracing. China’s death rate from the virus is less than one-third of 1% of that in the U.S. Chinese are blithely eating in restaurants, sitting in theaters, attending school, and going to work. On Jan. 18 the government reported GDP grew 2.3% in 2020, which makes China the only major economy to avoid a contraction for the year. Exports helped: They rose 18% in December from a year earlier despite slow demand growth abroad because Chinese exporters grabbed market share from foreign rivals. This year, Bloomberg Economics forecasts that China will take advantage of stronger economic growth abroad to realize GDP growth of 8.2%.

More Vaccinations, More Stimulus, More Sanity: A Guide to 2021

Don’t expect Biden to roll back the Trump tariffs on Chinese products anytime soon. “The mantra for the Biden people has been mostly ‘No sudden moves,’ ” says William Reinsch, a trade official in the Clinton administration and senior adviser at the Center for Strategic and International Studies. Biden’s team is likely to insist that China abide by the import commitments it made under a de-escalation agreement that took effect in February 2020. It will differ from Trump’s team in pushing China harder on human rights and enlisting allies to jointly combat unfair trading practices.

The pandemic slammed the U.K.’s economy worse than any other member of the Group of Seven nations, with GDP declining an estimated 10.3%, vs. about 3.6% in the U.S. The year’s only bright spot was a last-minute free-trade agreement with the European Union that helped the U.K. avoid a chaotic no-deal Brexit. Bloomberg Economics predicts 4.2% growth this year assuming the virus comes under control. Authorities expect to begin lifting the third lockdown in early March, in phases. “You can’t just open up in a great ‘Open sesame,’ ” Prime Minister Boris Johnson told reporters on Jan. 18.

About $900 billion in loans and grants should begin to flow to the EU’s struggling economies this year thanks to a December deal with Hungary and Poland, which had resisted conditioning recovery assistance on adherence to the rule of law. Germany brokered the agreement; with the U.K. cutting ties to the EU, Germany is more than ever its dominant member.

Economists predict Germany will continue to rankle trading partners by piling up big surpluses this year. The surplus on its current account—a broad measure of trade in goods and services and investment income—could amount to 6.5% of GDP this year, up from 6.3% in 2020. Merkel’s most likely successor as chancellor is her ally Armin Laschet, the governor of populous North Rhine-Westphalia, who was elected on Jan. 16 to head her party, the Christian Democratic Union.

Japanese Prime Minister Yoshihide Suga, who took over from the long-serving Shinzo Abe in September, is under pressure to suppress a Covid outbreak that’s prompted voluntary restrictions in prefectures that account for 60% of Japan’s economic output. He told parliament on Jan. 18 he’s still hoping to stage the Olympics this summer. In South Korea, which has fought the pandemic almost as successfully as China, President Moon Jae-in is able to focus this year on a secondary issue, making housing more affordable. The pandemic last year set back India’s aspirations to replicate the Chinese growth miracle, with GDP on pace to shrink 6.8% in the fiscal year that began April 1. Bloomberg Economics is looking for growth of 12.9% in the fiscal year beginning this April.

More Vaccinations, More Stimulus, More Sanity: A Guide to 2021

Brazilian President Jair Bolsonaro, a right-wing populist often compared to Trump, is distributing Chinese-made coronavirus vaccines to shore up his sagging popularity in advance of elections in 2022. In Africa, as elsewhere in the developing world, a key challenge for 2021 will be getting hold of shots. High-income countries have secured 85% of the supply of the Pfizer-BioNTech vaccine and all of the Moderna vaccine as of January.

A silver lining of 2020 was the accelerated adoption around the world of cloud computing, videoconferencing, and other efficiency-enhancing business tools. Jimmy Etheredge, Accenture’s CEO for North America, says one client of the consultant, a retailer with 1,000-plus outlets in the U.S. and Canada, was fretting before the pandemic that its 12-month timetable for enabling curbside pickup might be a bit rushed. Once Covid hit, it switched to curbside pickup at all the stores in two weeks.

It was exhilarating, but stressful. “A lot of 2020 was management by adrenaline,” Etheredge says, adding that this year looks like more of the same. “I think we’re still trying to sprint the marathon.”

©2021 Bloomberg L.P.

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