COVID-19 triggered a short, extreme, and negative shock to the U.S. economy, changing the economy’s shape amidst a recovery that is remarkably different in scope and contour from the Global Financial Crisis’ recovery. If the pandemic can be contained, the U.S. economy could grow above potential GDP for several years, according to an analysis from KPMG’s Office of the Chief Economist.
In “Shape Shifting: How the pandemic is changing the contours of the economy,” KPMG’s U.S. and global economic outlook calls for above potential GDP growth through 2023 with a 6.2% increase in GDP for 2021 representing a slight downward revision from July’s 6.7% forecast. While the economy has been recovering from the pandemic with the help of higher savings rates poised to be spent on services and technology-driven improvements in productivity, GDP growth is susceptible to downside risks due to the COVID-variants that have dampened consumer sentiment.
The uneven impact of pandemic-related shutdowns is showing across industries and in the labor market, where lower paid workers, who are unable to work from home, are seeing hourly wage growth.
In addition, on a global level, countries are facing uneven recoveries— by comparison to developed economies, emerging markets have higher death rates, lower vaccination rates, and more “muted monetary response.”
The COVID-19 pandemic led central banks to increase liquidity to contain last year’s recession. The economic impact of the delta variant of the virus could prolong the Federal Reserve’s interventions of buying fixed-income securities to lower term premium and keep long rates low, according to KPMG Chief Economist Constance Hunter. “The purchases could end as early as the second half of 2022 depending upon the pace of the economy’s trajectory, which is being heavily influenced by the virus,” she added.
To speak with Constance Hunter and KPMG's Office of the Chief Economist, please contact Bill Borden.