President Biden stepped into office during tumultuous times and with an aggressive agenda. His first few months in office have been a whirlwind of activity aimed at stemming the spread of COVID-19, recharging the economy through various stimulus plans, dealing with China, and taking a more proactive approach on climate change. PGIM brought together a handful of thought leaders to discuss these and other topics in our 2Q Outlooks webinar. Following are some highlights from the webinar.
- Biden is going big: One of the main goals of the massive COVID-19 stimulus package has been to support the economy this year as vaccines are being rolled out. More specifically, the administration is focused on the jobs market and how a jolt to demand can improve the labor backdrop. In fact, the impact of the package is already being felt in the economy; retail sales and household consumption have moved higher on the heels of the stimulus program, including the checks mailed to many Americans. The stimulus program will continue to provide significant support to the economy over the next several quarters and is one factor that will help drive rapid GDP growth this year.
- Inflation in the spotlight: Given the expectations for strong global growth, it’s likely there will be periods where aggregate demand outpaces supply, and in that environment, inflation may creep higher later this year. However, moving into 2022 the economy is likely to cool and demand pressures may ease as fiscal stimulus begins to wear off. In that event, the deep structural factors impacting the economy – aging demographics and high debt levels that restrain demand, among others – will reassert themselves and the post-pandemic economy will likely resemble the pre-pandemic economy.
- China vs. the US: The Biden administration has continued the US policy of staying tough on China, but it remains unclear how ‘Biden tough’ differs from what former President Donald Trump was trying to accomplish. From an investment perspective, both countries ended up doing better than most in dealing with the pandemic and both are currently enjoying strong growth. Longer-term, China has great global ambitions, but demographics may put a brake on the country’s growth. Investors will also need to closely monitor the potential for capital markets restrictions coming out of China.
- Spending on climate: Combatting climate change is becoming consensus on many different levels, and capital markets are increasingly focused on ESG while consumers are becoming more aware of the sustainable movement. The opportunities presented as the world addresses climate change are substantial; indeed, among the fastest growing job categories is clean energy. Government spending can play a role in the transition to a new economy, but that spending needs to be carefully thought out, with strong governance to ensure it’s delivering what is expected.
- Infrastructure with an eye on productivity: President Biden has proposed a bold program far beyond roads and bridges and it’s likely the administration won’t accept a final plan that’s less than $2 trillion. If the US can jumpstart its productivity growth it will go a long way to supporting strong growth with low inflation.