The US outlook is weakening; Economists say democratic sweep is best for stimulus: Reuters poll

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BENGALURU (Reuters) – The outlook for the US economy has darkened as the presidential election approaches, according to a Reuters poll that showed that a recent resurgence of new coronavirus cases was at high risk of stopping the economic recovery.

FILE PHOTO: A “We’re Hiring” billboard is seen at the entrance of a restaurant in Miami, Florida, United States May 18, 2020. REUTERS / Marco Bello / File Photo

New coronavirus infections recently reached record levels in the United States, and the number of Americans hospitalized with COVID-19 hit a two-month high, resulting in further restrictions. In Europe, many countries have also reimposed measures to curb the spread of the disease.

Rapidly rising case numbers and uncertainty over a budget relief bill resulted in the strongest U.S. stock market sell-off in a month, with the benchmark S&P 500 posting its biggest daily decline in four weeks on Monday , flattening the yield curve of the US Treasury.

Nearly two-thirds of 58 economists who answered a supplemental question in the Oct. 16-26 poll said there was a high risk that the U.S. economic rebound could be interrupted by the surge in coronavirus cases, including five who said it was very high.

“The pace of recovery is already slowing as households and businesses grapple with the impact of the foreclosure and the virus,” said Philip Marey, senior US strategist at Rabobank. “Meanwhile, the extension of the fiscal stimulus has not yet arrived, is late and will likely be modest.”

Reuters poll: US economic outlook –

The result of the November 3 presidential election, if available quickly, could quickly end the deadlock on a second fiscal stimulus bill.

“The outcome of the election will likely dictate the trajectory of further stimulus,” noted Michelle Meyer, head of the US economy at Bank of America Securities.

“A clear victory could speed up the stimulus negotiations. In the event of contested elections, the political environment creates a challenge for further stimulus. “

According to nearly 75% of the 59 analysts who answered a supplementary question, democratic oversight of the Senate, along with the victory of party presidential candidate Joe Biden, should lead to a stronger economic recovery in the near term.

Opinion polls suggest increasing likelihood of a Democratic net sweep, which could pave the way for massive fiscal stimulus in early 2021, focusing on income support and energy infrastructure investment projects at the forefront, ”said James Knightley, Chief International Economist at ING.

Reuters poll: which US election outcome will lead to a stronger economic recovery in the near term?

But one of the biggest economic worries stemming from the pandemic is high unemployment. More than 80%, or 41 of 49 respondents, said the unemployment rate in the United States would not return to pre-COVID-19 levels until at least 2023, including two respondents who said it would never.

The larger poll showed that the unemployment rate was on average 8.3% this year, 6.8% thereafter and 5.5% in 2022. It was 3.5% earlier this year before the pandemic does not set in.

The economy contracted in the second quarter at an annualized rate of 31.4%, its largest decline in at least 73 years. It is expected to grow 4% this quarter after an expected record rebound of 31% in the last quarter.

But growth is now expected to slow further in each quarter of next year, and much more than expected last month.

For this year, the world’s largest economy is expected to shrink by 4%, according to a poll of 120 economists.

The consensus for 2021 and 2022 was 3.7% and 2.9% growth, respectively.

About two-thirds of respondents, or 41 out of 62, said their forecast was based on another round of fiscal stimulus.

Among economists who expect more stimulus, the median was $ 1.8 trillion, in a range of $ 0.5 to $ 3.5 trillion.

“If the markets sell off violently and economic data deteriorates, we could see Washington easing the way through stimulus even in a very controversial environment,” added Meyer of BofA.

Reporting by Shrutee Sarkar; Poll by Tushar Goenka and Richa Rebello; Editing by Ross Finley and Bernadette Baum

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