The pandemic will dictate the contour of GDP for 2021, says KPMG.


As has been the case since the outset of the pandemic, the virus is dictating the economic outcomes. The faster governments can overcome the virus, the less economic scarring and the faster a full recovery can commence.


The economic and social response to the pandemic has not been uniform. Likewise, the geographic, industry, and household impact has not been uniform. This has led economists to call the recovery “K” shaped denoting the upper and lower legs of the K as it reflects the relative performance of various geographies, industries, and households.


Fiscal relief packages have been enacted in most countries and have been targeted towards those industries and households most impacted. Because the pandemic destroyed the supply of goods and services due to lockdowns and decimated demand due to reduced propensity and capacity to consume, it is believed that relief efforts to date, though large, are unlikely to ignite runaway inflation.


Monetary policy is also highly accommodative and can be withdrawn gradually as the recovery progresses should inflation worries be justified by highly elevated consumption and wage growth.


Looking past the pandemic, it is possible that some of the shocks brought about by the pandemic, such as the technology shock, may endure in the years to come. Digital transformation at the corporate level has the possibility to buttress productivity gains and enable greater diffusion of productivity beyond the pandemic.


Spotlight on real estate

Prior to the pandemic, the housing market downturn that began in 2018 precipitated the three rate cuts the Federal Reserve undertook in 2019.


The residential housing market was beginning to turn around in the two quarters before the pandemic hit.


The pandemic has brought into stark relief the utility one obtains from one’s home – increasing demand for homes and home improvement.


This rise in demand for utility coupled with the ability for 35% of the workforce to work from home (WFH) has led to a fall in demand for high-cost urban housing in favor of suburban homes and homes in cities with lower living costs.


The ongoing WFH phenomenon is affecting central business district real estate with everything including offices to retail to apartments being adversely impacted.


The big question for central business district real estate centers is the WFH factor. While many firms will keep a greater WFH component in place than prior to the pandemic, they recognize the need for in person collaboration, establishing and maintaining corporate culture, and the benefits of passive learning that occurs with multiple generations of employees working together in the same office.


While it may take time, we believe central business districts will come back from the pandemic and that the centuries-old progression of humans urbanizing will not be substantially reversed.


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By Constance L. Hunter, Kenneth Kim, and Henry Rubin 

About the authors: Constance L. Hunter, CBE, is Chief Economist at KPMG; Kenneth Jim, CBE, is Senior Economist; Henry Rubin is Economic Analyst.