A Biden stimulus plan will spur US economic growth of 4.6% in 2021, Ned Davis Research says

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  • The US economy could expand 4.6% in 2021 on the back of huge fiscal spending by President-elect Joe Biden's administration, according to a note from Ned Davis Research.
  • The successful distribution of a COVID-19 vaccine will serve as a tailwind throughout 2021, but investors should prepare for a weak first half of growth followed by a strong second half, NDR said.
  • Other tailwinds that will support a strong US economy in 2021 include an accommodative Fed, housing market strength, and a weaker US dollar, the note said.
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President-elect Joe Biden's multi-trillion dollar stimulus plan will spur a surge in economic growth next year, according to a Wednesday note from Ned Davis Research.

NDR estimates US real GDP will increase by 4.6% in 2021, in a recovery that will be marked by a slow start in the first half of next year, followed by a strong second half.

"We expect a significant boost from fresh fiscal spending and account for above-trend growth early in expansions," NDR said.

Total spending could be as much as a $5.4 trillion increase over the next decade in areas like infrastructure, clean energy, manufacturing, education, and healthcare, according to Biden's plan, while an increase in taxes on high-income earners and corporations will raise $3.4 trillion in 10 years.

"Most of Biden's spending priorities have high output multipliers between 0.4 and 2.2, which means that every dollar of government spending generates between $0.40 and $2.20 of output," NDR explained.

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But Biden's fiscal stimulus plan is just one of the tailwinds that could help build a strong foundation for economic growth in 2021, according to NDR.

The successful distribution of a COVID-19 vaccine will help hasten a reopening of the global economy and spur consumers to get out and spend, while an accommodative Federal Reserve will "ensure market liquidity," NDR said.

Other tailwinds for US economic growth will include continued strength in the housing market, stronger global growth, and a weakening US dollar, the note said.

But the economy isn't out of the woods yet, and still faces a number of headwinds, especially in the first half of 2021, NDR explained.

Those headwinds include the continued spread of COVID-19, localized lockdowns, a slow recovery in the jobs market, a rise in evictions and bankruptcies, and cutbacks to state and local governments.

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