In the past six months, consensus expectations have essentially converged to our optimistic view on the US economic recovery. We expect US GDP to drop 3.4 per cent in 2020 but surge back in 2021 and experience further catch-up growth in following years. By 2024, we think that US GDP will recover to just 1 per cent below our pre-covid-19 expectation.

US Real GDP forecast

US GDP will fall sharply in 2020, but we expect rapid catch-up afterwards, Morningstar says

Widespread vaccination in the US by mid-2021 should enable a return to normal in much of the economy. In industries highest affected by COVID-19 (such as restaurants and hotels), employment and output were down 15 per cent-20 per cent year over year in the third quarter. These industries account for just 6 per cent of US GDP at prepandemic levels but 15 per cent of employment.

As such, their recovery is critical for a broader labour market recovery. US consumers are eager to spend, as evinced by very strong spending on consumer goods, especially durables. Consumer-services spending should come roaring back once the need for social distancing is alleviated by mass vaccination.

US personal consumption

US consumers are eager to spend, according to Morningstar

The passage of a new $900 billion (about 4 per cent of US GDP) stimulus package has removed one concern regarding the US economy. But we don't think a lack of stimulus would have been fatal to the recovery.

Another potential threat is the surge in coronavirus cases in recent months; however, we don't think this will sink the economy before the vaccine can be rolled out. Additionally, we don't see major macroeconomic implications from the US election outcome, irrespective of whether the Democrats capture the Senate via the 5 January Georgia runoffs.

We've looked at several historical episodes in order to best understand the world after covid-19. Our goal is to understand, in general, what happens when the economy is perturbed by an extreme but temporary external shock. Pandemics are one type of this class of events, but so also are wars, political upheaval, and related disruptions.

For example, our analysis shows that UK rationing in World War II didn't depress long-run consumption of rationed goods via a change in habits. Instead, demand for rationed goods generally mounted a full recovery. Episodes like this suggest we should think carefully before proclaiming that any aspect of pandemic life will become the "new normal."

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