- Expect a “VW” recovery: V in the markets fueled by long-term optimism and W in the U.S. economy amid near-term COVID challenges
- U.S. GDP growth of 2% to 3% by the middle of 2021 is likely, according to economist Jared Franz
- Pent-up demand for goods and services should drive big gains once the virus is under control
COVID-19 has forced economists to become students of virology.
“The virus is the economy,” says Capital Group U.S. economist Jared Franz. “All economic growth forecasts depend on the trajectory of the virus — whether it gets better or worse, whether we can develop an effective vaccine and whether government stimulus measures will continue to help bridge the income gap for workers who have been displaced by this unprecedented downturn.”
So when is growth likely to return to pre-pandemic levels? By the middle of 2021, Franz expects the U.S. economy to grow at an annualized rate of roughly 2% to 3%, fueled by pent-up demand from months of sheltering in place, as well as the growing likelihood of a pandemic-ending vaccine becoming available to the public.
Due to the high level of uncertainty, Capital Group’s economic team has put together a scenario analysis of V-shaped, U-shaped and W-shaped economic recoveries. However, Franz said “K-shaped” — or moving in two different directions — might be appropriate, as well, given the disparity between sectors that have benefited from the pandemic and those that have been crushed by it.