BofA Global Research Economists Raises U.S. GDP Growth Expectation To 6.5% for 2021
According to reporting from Business Insider, economists from Bank of America on February 22, said they now expect the U.S. economy to grow 6.5% this year, up from a previous call for 4.5% growth, based on the expected size of the stimulus package and better news on the economy and the virus front.
The bank increased its 2021 US GDP growth estimate to 6.5% from 6.0% as it has become “more convinced” that the consumer will get out and spend this year, the note said. The bank also sees heightened economic growth extending into next year, bumping its 2022 GDP growth estimate to 5.0% from 4.5%.
“The services side of the economy…can come back in a significant way after the vaccine has been implemented.”
Michelle Meyer | Head of U.S. Economics, BofA Global Research
BOFA Global Research cites three main reasons why they have made the decision to increase their economic growth forecast for 2021.
1 A larger fiscal stimulus package
Congressional Democrats are pushing for a $1.9 trillion stimulus package that is scheduled to be voted on next month. But there is still work to be done on the bill, and some provisions proposed in the legislation will hit some road blocks, BofA said.
“We now think that the bill will total $1.7 trillion, up from our prior assumption of $1 trillion. Not all provisions will hit the economy right away and we expect that $1.2 trillion of monies will hit this year with the rest spilling into next year and beyond,” BofA said, adding that the “flood gates are about to open.”
2 Improved news on the virus front
The recent news on the virus front has been “unambiguously positive,” BofA said, pointing to virus cases being down 72% from the January peak, with hospitalizations following closely behind. This encouraging data should help tightly locked down states like New York and California ease restrictions.
“Vaccinations are running at a faster-than-expected-rate, which should pull forward the timeline for successful reopening of the economy. This will help to unleash demand for leisure and other COVID-sensitive services even earlier than previously anticipated,” BofA said.
3 Encouraging economic data
Consumers quickly put their stimulus checks to work in December, with exceptionally robust retail sales data leading BofA to boost its first quarter GDP tracking estimate to 5.5%. A recovery in manufacturing has also materialized at a rapid pace as the housing market booms, evidenced by recent building permits data.
“The goods side of the economy is still riding high while the services side is waiting with bated breath to participate. We expect the economy to accelerate further in the spring and really come to life in the summer,” BofA said.
The biggest downside risk to BofA’s estimates? If the virus curve steepens again, resulting in a fourth wave, according to the note, which added that it does not expect a rise in inflation will lead the Fed to hike interest rates too early.
Dallas Fed’s Robert Kaplan Sees U.S. Economy Growing at Least 5% in 2021
According to recent reporting from Reuters the President Robert Kaplan the DALLAS Federal Reserve, stated on Monday’s that his forecast for 5% U.S. GDP growth this year could be an underestimate, given the likelihood of further fiscal support and the rollout of vaccines. Mr Kaplan told the Garland Chamber of Commerce that “Americans will gradually engage more fully in the economy between now and June as coronavirus vaccines are rolled out.” He further explained that “we think we see substantial improvements in mobility and engagement in the third quarter and fourth quarter.” He went on to predict that “if we are wrong, the risks are to the upside – we may grow faster.” He also thinks that unemployment, which is currently at 6.3%, will decline to below 4% next year. Fed officials will deliver their next set of quarterly economic projections at a policy meeting in March.
The Reuters article cited that the Fed’s median forecast from December of 4.2% growth this year is looking increasingly stale amid strong consumer spending.
Mr. Kaplan said a lot will depend on the handling of the pandemic, especially the pace of vaccine rollouts globally. According to recent data from the U.S. Centers for Disease Control and Prevention, the United States has partially or fully vaccinated about 44 million people, or about 13% of the population. In comparison, only Israel, the United Arab Emirates, and the United Kingdom have rolled out vaccines at a faster pace.