The Year Ahead: More Vaccinations, More Stimulus, More Sanity

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.

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.

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