December 29, 2020
Raymond James Chief Economist Dr. Scott Brown reflects on the trials and tribulations of 2020 and discusses his outlook for the new year.
The COVID-19 pandemic had a significant impact on economic activity in 2020, and we should see a rebound from those effects in 2021. The major hit to the economy was in sectors where individuals come into close contact with others:
- Consumer services, including tourism
- Air travel
- Sporting events
- Brick-and-mortar retail shopping and restaurants
State and local restrictions on social distancing amplified these effects, but voluntary self-isolation appears to have been a bigger factor. The November/December surge in COVID-19 cases is likely to dampen the pace of economic improvement into early 2021, but not lead to an overall contraction in economic activity. The arrival of vaccines should lead to more robust growth in the second half of the year.
Early in 2020, the concern was that the pandemic would lead to a broad financial crisis and a snowballing of weakness across the economy. Thankfully, that didn’t happen. The Federal Reserve (Fed) cut rates to the effective zero lower bound in early March, relaunched liquidity facilities that it had employed during the 2008-09 financial crisis (and created a few new ones), and restarted large-scale asset purchases (what most people call quantitative easing or “QE”). Lawmakers in Washington passed a massive fiscal support package, which included healthcare expenditures, “recovery rebates” (checks and deposits), support for small businesses, extended unemployment benefits, and aid to state and local governments.