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Budget office: US economy to contract 37.7% in Q2 - FORECAST

20 May 2020 11:32 (UTC +04:00)

The Congressional Budget Office released its own bleak outlook on economic growth, unemployment, and the federal budget on Tuesday, predicting job gains later this year but a global climate that will remain subdued until 2021, APA-Economics reports.

In its latest projections, the CBO sees GDP capsize by 38% on an annualized basis in the second quarter with 26 million Americans unemployed more than at the end of 2019.

The forecast is roughly in line with Wall Street economists and slightly less austere than the latest follow-up issue from the Atlanta Federal Reserve, which sees GDP fall by about 42% between April and June.

If the collective outlook is almost right, it will represent the worst drop for an American economy that has been shutdown due to efforts to stem the coronavirus pandemic.

“The economy is expected to start to recover in the second half of 2020 as concerns about the pandemic decrease and state and local governments ease restrictions,” said the CBO in an account accompanying its projections.

Employment growth will improve “significantly” in the third quarter, as social distancing policies associated with the virus decrease somewhat. However, the CBO said that “the persistence of social isolation will keep economic activity and labor market conditions suppressed for some time.”

The bureau also warned that “the decline in economic activity has been so rapid and recent that the depth of the recession is still uncertain, and spending data is preliminary and incomplete.”

Congress responded to the pandemic with a bailout bill that totaled nearly $ 3 trillion and one that could be as much or more.

Looking at only the money approved so far, the CBO said it would increase the federal deficit by $ 2.1 trillion in fiscal 2020 and $ 600 billion in 2021.

The levels correspond to around 11% of nominal GDP in fiscal year 2020 and 3% in 2021.