Economists See Short-Term Pain, Long-Term Gain for 2021

NEW YORK, NEW YORK - SEPTEMBER 27: Philadelphia Federal Reserve President Patrick Harker visits "Mornings With Maria" at Fox Business Network Studios on September 27, 2019 in New York City.

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On a day in which the U.S. grappled with the aftermath of President Donald Trump supporters sacking the Capitol, 3,865 COVID-19 deaths, and a poor weekly unemployment claims report, Federal Reserve Bank of Philadelphia president Patrick T. Harker nevertheless found reason for hope for a better year ahead.

“I am optimistic that in the second half of 2021, the economy—and frankly, life—should begin to look much more normal,” Harker said in a Philadelphia Business Journal Economic Forecast virtual event Thursday morning. “GDP growth should be strong in the second half of the year, and through 2022, before a light tapering in 2023.”

Despite headlines surrounding the failed attempt to overturn Trump’s electoral defeat, the news that figured most heavily into Harker’s analysis was the recently signed $900 billion relief package, which he predicted would help buoy the economy until vaccines become widely available. 

Still, Harker expects the current hard times to continue for a while longer before getting better, thanks to ongoing job losses and the resurgence of the pandemic, possibly even leading to negative growth in the first quarter of 2021.

“The three most important things affecting the economy are: the virus, the virus, the virus,” he said. 

Harker is not alone in forecasting near-term economic pain followed by a strong recovery later in the year, as multiple economists have given year-end forecasts along similar lines.

S&P Global Ratings predicted a global economy “limping into 2021” with the U.S. hitting its pre-pandemic gross domestic product (GDP) by the third quarter.

“Hope is on the horizon with the news of several successful vaccines,” Paul Gruenwald, chief Asia-Pacific economist at S&P Global Ratings, wrote in an early December report. “However, much adjustment lies ahead."

Economists at Moody’s Analytics wrote in a Dec. 29 forecast that “after a tough start the economy should have a much better 2021,” also warning that “the first few months of 2021 will be weak as the pandemic continues to intensify.”

And in its most recent economic and housing outlook published Dec. 15, Fannie Mae predicted a healthy growth rate for 2021, but only after a weak start.

“The conditions for a continued, strong recovery are present once the limiting factors of COVID-19 on consumer behavior are lifted,” the report stated. “With that said, growth in the next few months is likely to be weak, and uncertainty remains high in the short run. The economy will have to navigate some obstacles before accelerating again.”