2020 was the year of lockdown restrictions. As state governors across the US force shutdowns on non-essential businesses and millions of workers were sent back home, the economy suffered one of its all-time low points. Experts have predicted that even though the economy is on the road to recovery, it won’t return to the pre-pandemic levels until mid-2022.
How did the economy fare in 2020?
2020 was a tough year for the US (and the world in general) on the healthcare front. The economy suffered just as much. According to a government source, the pandemic greatly impacted the personal income of a common American.
By the end of the third quarter, state personal income came down by 10%, and it acquired a downward trend in almost every trend. Consumer spending also decreased by 0.4% as of November. The current account deficit further widened by a hefty figure of $17.2 billion.
Thankfully, as the states reopened, the real GDP regain its lost ground and increased by 33.4% in the third quarter. This was nearly 0.3% greater than the figures from the second quarter. According to the same report, the real GDP had increased by 31.4% in the second quarter.
What to expect from 2021?
Experts have predicted that the federal debt is expected to increase in 2021. On Oct 1, 2020, it increased by a hefty $27 trillion. Lower tax revenues and the added debt from the CARES Act also played their part.
By the end of the third quarter, the debt to GDP ratio was 127%—far greater than the IMF’s 77% recommendation. The only way to increase the interest payments is to raise interest rates. The Fed is highly unlikely to do so, at least till the pandemic comes to an end.
According to The Guardian, 2021 might also bring the much-needed stock market boom but at a cost. As vaccines roll out, one can expect wild swings in the stock market. Just in the last week of October, Marks and Spenser went up by 60%, JD Wetherspoon by 37%, Gym Group by 64%, and Wagamama by 83%. Given how shoppers are still queuing outside Primark stores for hours, we can expect a mini-boom.
Are we headed to a depression?
The financial experts at CNBC disagree.
Although the economy is in what we can call a ‘medically-induced coma,’ things aren’t grim enough to bring about a depression. A financial recession is when the GDP continues to decline over multiple quarters—this is not the case as far as the 2021 predictions are concerned.
However, it would help if you were vigilant with your transactions. As we move into 2021, always leave some emergency funds behind, invest wisely, and seek wealth management advice. SJG Financial Services would be glad to help you make well-informed decisions if you’re based in Santiago.