Economist Says US Economy Will Get Worse Before Better Even With a Vaccine
Alejandra Grindal, senior international economist at Ned Davis Research, believes the US economy is still in trouble, according to CNBC.
We have yet to see “the storm before the calm." On Tuesday, the UK started distributing the Pfizer and BioNTech vaccine to its citizens. The US Food and Drug Administration also announced on Tuesday that the vaccine raised no safety concerns.
Grindal explicitly stated that “things will get worse” before they get better. “We could see things get a little worse in Q1, especially if the virus gets worse and worse, lockdowns stay longer and we don’t get a renewal of that stimulus."
Grindal believes these next three months are crucial for the US even if the US can widely distribute a vaccine in the second quarter of 2021.
“Mass deployment of some sort of vaccine early on in Q2 or throughout Q2 of 2021 ... could fuel a pretty sharp recovery not only in U.S. economic activity, but also global economic activity due to pent-up demand, especially for a lot of services, as well as pent-up savings to be able to drive that demand,” she said.
International economies have already started to recover. Global new export orders just reported their third month in a row of expanding. China's purchasing managers' index grew to its highest level since 2010.
“When you’re looking at the global economy in aggregate, China plays a pretty big role. It’ll likely be the only contributor, at least major contributor, to global growth this year,” she said. “They focus slightly less on services, which [have] been more Covid-sensitive, and more so on manufacturing, and we’ve seen a pretty sharp recovery.”
On the other hand, Grindal believes the UK, Europe, and Japan are extremely vulnerable to a “really sharp double-dip recession risk.” Her analysis raised questions about how the Biden Administration will deal with China.
“Investors will be mistaken if they feel that under a Biden administration the U.S-China trade war will be over. That’s very unlikely,” Grindal said. “One big development that we’ve had over the past four years is this general view both among Democrats and Republicans that China has engaged in unfair trade practices.”
Last week, Biden stated that he had no intention of removing Trump's tariffs on China right away, but would focus on “develop[ing] a coherent strategy with U.S. allies."
“He’ll probably remove them maybe as a leveraging tool, maybe to allow U.S. companies to engage in Chinese ventures a little easier or perhaps in exchange for some sort of human rights benefits,” Grindal said.
“The biggest change that I think you would see between Biden and the Trump administration is that Biden will be much less abrupt. So, I don’t think he’ll tweet overnight and say, ‘We’re going to have a big increase in tariffs tomorrow,’” she said. “From that perspective, I think that’s relatively market-friendly, because as we saw in 2018, a lot of these abrupt tariffs did create a lot of jitters in the market.”