Economic Forecasts

GDP: 5% Growth Likely This Year

Kiplinger’s latest forecast for the GDP growth rate

GDP will likely grow by 5% this year because of the additional fiscal stimulus coming from Congress, now that the Democrats’ wins in the Georgia Senate races will give them control of both Congress and the White House. That growth rate will push the economy past its prepandemic level sometime in the middle of this year. Also, growth in the fourth quarter of 2020 is likely to have been around 4%, better than expected, given the virus resurgence since October.

As the pandemic recedes, consumers’ savings could be used to splurge on services that people have been skipping, setting up a possible boom in that sector. While the consumer savings rate declined to 12.9% in November, it is still well above its normal level of 7.5%. For the year so far, consumers have saved 16.7% of their disposable income, and will have plenty of cash to boost spending on travel, dining out and other services after the pandemic is brought under control. 

A caveat: new COVID-19 variants have the potential to become a drag on growth this year. The vaccines are supposed to be effective against the new variants, but it's possible that if the variants spread in the U.S., that a larger share of the population would need to be inoculated to achieve "herd immunity." That would delay the return to a normal economy. It's too early to tell whether that will be the case, however.

GDP grew by a phenomenal 33.4% in the third quarter of 2020. Consumer spending on durable goods soared 82.7%, to a level that is now 11.9% above the prepandemic level. Business purchases of equipment surged 68.2%, and housing-related purchases rose 63%. Exports and imports both leaped, but imports were up more, so the trade balance worsened. The only negative notes were a 17.4% drop in nonresidential building, and a 6.2% decline in government spending, mostly related to the conclusion of the stimulus payments to consumers and the Payroll Protection Program loans and grants to business.

Source: Department of Commerce: GDP Data

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