With Democrats winning the two Georgia Senate runoff races, they will hold a “soft” 50-vote majority. Control of the Senate will allow President-elect Biden to enact more of his ambitious fiscal agenda while boosting prospects for more fiscal stimulus and more rapid economic growth in 2021-22.
We expect additional fiscal stimulus will come in two forms. Congress will likely pass, on a bipartisan basis, additional stimulus checks totaling $1,400 per person on top of the $600 checks passed at the end last year. Thereafter, President Biden will attempt to pass some of his spending and tax proposals via the budget reconciliation process requiring only a simple majority.
The third round of stimulus checks should lift GDP by 0.7%. We forecast real GDP growth will average 4.3% in 2021, following an anticipated 3.4% contraction in 2020. While worsening health conditions will weigh on growth in the near-term, policy risks appear tilted to the upside with real GDP likely to advance around 3.9% y/y in Q4 2021, versus 3.2% y/y in the December baseline.
Any potential boost from a Biden-lite scenario will depend on the timing, size and composition of the final package. Our pre-election scenario analysis showed that Bidenomics could lift real GDP growth by around 1.2ppts.