Americas and Caribbean
The US economy has exhibited solid growth up until the coronavirus pandemic. Businesses had benefitted from the tax cuts implemented by the Trump administration as well as a buoyant tech sector. The strengthening recovery had allowed the Federal Reserve to start raising interest rates in December 2015 for the first time in almost a decade. In successive moves, the Federal Funds rate target range was moved to a temporary high of 2.25% - 2.50% at the end of 2018. The US labour market had strengthened considerably in the past years with the unemployment rate falling to a multi-decade low of 3.5% in late 2019. Having said this, the labour force participation rate never recovered to levels seen prior to the financial crisis.
The coronavirus pandemic and the lockdowns implemented to stop the spread of the virus have hit the American economy hard, leading GDP to contract at a rate of 9% in the year to Q2 2020. Unlike most European countries, the US did not implement any income protection schemes. The unemployment rate shot up from 3.5% in February 2020 to 14.7% in April as businesses shed employees to cope with the costs of the crisis. Due to the flexibility of the US labour market, unemployment has since fallen back though it remains well above pre-crisis levels and the rate of jobs growth has started to level off in the autumn of 2020. Both the federal government and the Federal Reserve helped to soften the economic blow, e.g. through unemployment benefit top-ups and the disbursement of $1,200 stimulus checks.
The coronavirus pandemic remains the biggest risk to the US growth outlook for the remainder of 2020 and 2021. While the economy recorded a sharp uptick in activity over the summer as restrictions were eased, a second wave of cases and new lockdowns could erase those gains quickly.
Mexico has entered the year on a considerable weaker footing than its neighbour in the north, having fallen into recession in summer 2019. Throughout 2019, the Mexican economy has suffered from labour disputes, falls in industrial production and cuts in public expenditure. The external sector, too, struggled as global growth weakened in 2019. Like many developing countries, Mexico is struggling with its response to the coronavirus pandemic due to the size of its informal economy and limited fiscal capacity of the state. The Mexican economy was 18.7% smaller in Q2 2020 than in the same quarter last year.
Canada, the remaining North American economy, is expected to show the fastest bounce back from the coronavirus crisis. The pandemic in combination with the oil price shock have caused a record-steep recession. A strong recovery in retail sales and a partial uptick in exports bode well for the future trajectory of Canada’s economy, as long as coronavirus case numbers can be kept in check.