U.S. Outlook to 2040

Updated: January 7, 2021

Growth, jobs, and inflation interrupted.

The U.S. economy will slowly recover from the devastating effects of COVID-19. By 2023, the gap between potential and actual growth should close. However, there will be lingering effects. While weaker economic growth over the long term partly explains the anticipated higher unemployment rate, the damage caused by the virus—especially in the service sector—implies that some jobs will never return.

Contents of the December 2020 edition:

  • Low domestic demand will slow down GDP growth
  • Inflation not expected to rise much above 2.0 per cent over the long term
  • Fertility rate to stay below replacement rate through to 2040
  • Immigration at a low ebb following Trump and COVID-19
  • Participation in the workforce will peak in 2022
  • COVID-19 not the sole factor affecting productivity
  • The link between education and productivity is weakening
  • How Americans will spend
  • International trade takes a hit from demographics and deglobalization movements
  • U.S. economy could operate with little long-term inflation

Key findings

Economic growth will slow down over the long term due to population aging and its impact on the size of the working‑age population.

Potential economic growth declined sharply in 2020 due to a collapse in investment spending. It will slowly recover over the medium term but then start to drop once again through the long term, pulled down by population aging and weaker productivity growth.

Fiscal deficits surged in 2020 due to the spending required to support the economy during the pandemic. Deficits will slowly decline over the medium term but will remain high until the later years of the forecast period because of the upward pressure on health care spending that comes with an aging population.

Consumers will spend less on durable goods and more on services, notably health care, over the long term. Spending on services such as travel could continue to suffer over the long term due to the lingering impacts of the pandemic.

The pandemic will lead to permanent job losses in the accommodation and food sector, as some businesses will not survive the loss in revenues caused by the COVID‑19 control measures. Consequently, the unemployment rate will likely remain above its pre-pandemic levels throughout the long term.

The U.S. dollar will slowly depreciate over the long term. This will be due to the closing of the spread between U.S. interest rates and those in other countries, as well as to the loss of confidence among some foreign investors in the federal government’s ability to deal with trillion-dollar fiscal deficits.

In general, the U.S. economy will be more digitized and less equal through 2040, a trend closely linked to the lasting effects from the pandemic.