US: Lasting weakness in the largest economy

It is likely that the COVID health crisis will last longer in the US than in Europe or China, and therefore that the US economy will be more permanently affected than others by the health crisis. Economists at Natixis expect activity to remain weak in the third quarter in the US and this weakness spreading to countries that are heavily dependent on the United States, leading to continued expansionary fiscal and monetary policy, a decline in capital inflows and a depreciation of the dollar along with a social crisis in the US.

Key quotes

“The lockdown measures are being extended in many states in the US, which means that US activity can be expected to remain sluggish in the third quarter of 2020. Currently, trends in unemployment, production prospects and capacity utilisation show a slightly weaker recovery in the US than in the Eurozone.” “The US economy is likely to be permanently weakened by the prolongation of the health crisis, with internal consequences (social crisis, expansionary economic policies) as well as external consequences (weakness of countries economically linked to the US, decline in capital flows to the US).”