Humbling Outbreak

The renewed global resurgence of COVID-19 demonstrates that the virus remains the largest risk to every economy’s outlook. The widespread nature of the viral surge shows that many nations that had appeared to have mitigated the virus remain at risk for great economic and physical harm. Lockdown measures are likely to push most European economies back into contraction and put a dent in the recovery around the world, even in places with no new restrictions.

Vaccine developments have cheered markets, but the many months required for approval, production and dissemination of vaccines will prevent a rapid recovery. In the near term, the global economy will continue to live with the virus as best as it can.

The following are our views on how major world markets will fare during the balance of this year and next.

United States

  • With former Vice President Joe Biden the winner in the race for the White House, focus has now shifted to how the president-elect will approach the pandemic alongside other domestic and foreign policy matters. While the prospect of gridlock between the Senate and the House on important legislation has cheered markets, it may not be the best outcome for the economy.
  • America is witnessing a renewed outbreak in COVID-19, prompting localized restrictions on activity. After record economic activity recorded in the third quarter, there are growing signs that the economy has again started losing momentum. In our base case, the surge in fresh COVID-19 cases along with fading fiscal support will slow the economic recovery, but not derail it. A stimulus package will likely be passed in the first quarter of 2021 that should soften the hit to the economy.


  • As we recently discussed, the eurozone is at risk for a double-dip recession. The region has long been in an economically unsteady state, starting the year on the cusp of recession even before facing COVID-19. New widespread and strict lockdown measures across many nations will keep consumers home, likely driving growth negative for a brief interval. But this lockdown should be less severe in its consequences than the dramatic downturn seen in spring, and 2021 is poised for a return to growth.
  • At its October meeting, the European Central Bank (ECB) stated that it would “recalibrate its instruments,” previewing an expansion to the asset purchase program likely to be announced at its December meeting. While quantitative easing is helping to maintain financial stability, each additional dose of this medicine depletes the ECB’s ability to provide stimulus to a liquidity-flooded market.