The total output of goods and services (real GDP) for the United States rocketed upward at an annualized rate of 33.1% in the third quarter of 2020, a record rate of advance. In the second quarter real GDP had fallen an annualized 31.4%, a record rate of decline. The large swing in output was not unique to the United States; it was widespread across the globe. Both the downturn in global production and its rebound are the direct result of the course of the COVID-19 pandemic. The precautionary measures taken by individuals to minimize the risk of catching the disease and by governments to contain it by discouraging or prohibiting various economic activities created the global downturn. Relaxation of those measures, along with massive monetary and fiscal policy support (now totaling $11.7 trillion or about 12% of world GDP) by the world’s national governments, created conditions for the rebound.

Unfortunately, after substantial progress had been made in reducing the rate of new infections, “COVID-19 fatigue” led to the over-relaxation of precautionary measures, and another wave of increases in new COVID-19 infections has begun to stalk the world’s economies. So far, however, governments have been reluctant to re-impose total economic shutdowns, and the impact has fallen mostly on service businesses (and their employees) that require close interactions with customers.


  • COVID-19 Still Rules, but Its Time Appears Limited – The course of the economy and asset values are still at the mercy of the disease. However, strong near-term prospects for an effective vaccine suggest control of the disease may occur by the end of 2021.
  • Fed to Keep Policy Rates on an Extended March to Nowhere – Members of the Federal Open Market Committee (FOMC) expect monetary policy to remain exceptionally accommodative and interest rates to stay near zero for at least three more years.
  • A Heightened Need for Bond Investor Caution – Investors still face low returns unless they are willing to accept higher duration or credit risk. Although yields are likely to stay low in the medium term, taking extended duration risk could have severe adverse consequences when yields begin to increase.
  • Global Recovery Opportunities Remain in Place – Equity market segments that have lagged in 2020, U.S. small and mid-cap stocks, foreign stocks, and value stocks are well positioned for the global economic recovery cycle in 2021.


Global real GDP results for 2020 will not be pretty. The International Monetary Fund projects that advanced economies will experience a 5.8% decline. Emerging and developing economies are projected to fall 3.3%. Global real GDP is projected to fall 4.2%. However, growth has already resumed and even with a near-term setback due to COVID-19, global growth appears likely to exceed 5.0% in 2021.

A cyclical recovery is well under way in the U.S. economy. Manufacturing and most services have largely recovered from April low points. October purchasing managers indices for both manufacturing production and for services business activity, for instance, were well into expansion territory. Lagging activities are largely concentrated in retail trade, transportation, entertainment, accommodation and food services industries, which account for about 12.0% of U.S. economic output.

The recent pickup in new COVID-19 cases is a serious concern. However, complete shutdowns of business and social activities designed to slow the pace of new COVID-19 infections will probably be avoided by the vast majority of state and local governments. Most local politicians are now wary of the costs of extreme actions and prefer to take more focused steps.

Still, some service activities will bounce back only slowly, and restrictions in response to recent COVID-19 infection rates will likely have some spillover effects on other industries. Annualized real GDP growth will slow to around 4.0% in the fourth quarter. Year-over-year real GDP is projected to fall 3.6% in 2020 before resuming growth with a 4.0% advance in 2021.

To receive a full copy of the Executive Summary or the entire 24-page “Notes on the Economy” report, contact your AMG advisor or submit a request for more information.


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