The US Presidential Election 2020 - an FAQ
30 September 2020
Americans head to the polls in one of the most intense US elections in decades. We take a look at what is at stake.
10 min read
06 Oct 2020
The pandemic has taken a turn for the worse this month, with daily new cases exceeding 300,000 for the first time. More countries are tightening restrictions in an effort to avoid re-entering lockdown, with Israel making headlines as one of the first to do so. Re-tightening of restrictions in numerous major economies looks set to further weigh on the global recovery, which is now beginning to lose pace, as anticipated. But while we have had to make a number of idiosyncratic downgrades for this year, we now assume a firmer rebound next year amid positive progress on the vaccine front. We look for a modestly more marked global contraction of 4.0% in 2020 (previously -3.9%) followed by a slightly firmer rebound of 5.7% (previously +5.6%) in 2021. But risks remain skewed towards a more protracted economic recovery.
While Donald Trump's illness has captured the headlines, daily reported US coronavirus cases have come down following tighter restrictions in many states, though they are still elevated. This has damped economic momentum, but the third quarter still appears to be on track for a 25% annualised gross domestic product (GDP) rise. After that, growth will slow notably, especially in the absence of a further fiscal package. Our current forecasts envisage a 4.2% drop in GDP over 2020 and a 4.5% rise in 2021. We now see the Federal Reserve on hold until mid-2025. As a result, US dollar investors have focused more on election uncertainty. Mr Biden is still favourite to take the presidency, which would reduce US-China tensions, but there remains a prospect that the new president, whoever that is, faces a divided Congress. There are even questions about the election result being contested.
Euro-area economic activity has rebounded strongly from the trough in April, but the recent spike in coronavirus infections is raising questions over the outlook for the recovery. Despite governments reintroducing social restrictions, they have been less stringent than in March and April. Such measures present a further downside risk to economic growth, but absent of full lockdowns being reintroduced, we expect the recovery to continue and forecast GDP growth of -7.1% 2020 and 5.6% 2021. However, given the risks and persistently low inflation, further easing from the European Central Bank (ECB) remains a distinct possibility. Indeed, we expect the ECB to step up the pace of monthly purchases under the Asset Purchase Scheme once the Pandemic Emergency Purchase Programme comes to an end in 2021.
After a benign summer, Covid-19 infections are climbing again. A number of regions have been subjected to stricter measures, while new national restrictions include a 10pm pub curfew. We have trimmed our GDP forecasts to -9% for this year and +6.4% next (previously -8.4% and +6.8%), but a more material downgrade is a risk if more draconian measures are imposed. It will also depend on what path the chancellor takes. Also, the risk of a "no-deal" Brexit with the European Union has risen. Still, our central expectation is that an agreement will be struck just in time for an orderly departure from the transition period. Meanwhile, a negative interest rate is not our baseline view, but we still expect the Bank of England to sanction a further £75 billion of quantitative easing (QE) in November.