Vaccines too late to prevent bleak winter

There is now clear evidence that the continued surge in COVID-19 infections and restrictions imposed to control its spread are once again weighing on the economy, with employment growth slowing sharply in November and retail sales dropping back. Moreover, while the initial outbreaks in the Midwest are being brought under control, with hospitalisations levelling off in recent weeks, that improvement is being offset by accelerating outbreaks in the rest of the country. That suggests the economy is set for further weakness in December, a view supported by the latest high-frequency data. Admittedly, the past few days have seen rising hopes of another fiscal stimulus deal, which could include a second round of direct payments to households. Nevertheless, while that reinforces our view that GDP growth will rebound markedly from the second quarter of 2021 onwards, as vaccines are rolled out on a widespread basis, it is unlikely to prevent further economic weakness over the next few months.