US Watch – Brace for the summer dip

Activity has recovered more quickly than expected following the easing of lockdowns. However, the resurgent pandemic is now leading to a stalling in that recovery. The net effect of this is to keep our base case intact, and we continue to expect the economy to contract by -4.8% in 2020, followed by a 3.4% recovery in 2021. While we see tentative signs of a peak in the second wave, the damage is already done. The policy reaction to the second wave has been much milder than the first; however, consumer caution is now a more significant driver of the renewed weakness in the economy. We are now also starting to see more powerful second-round effects, with permanent layoffs surging.