The coronavirus is likely to reduce GDP by $7.9 trillion, or 3%, through fiscal 2030, according to the Congressional Budget Office.
Nominal GDP is projected to be $15.7 trillion less due to the virus, the report said.
“Business closures and social distancing measures are expected to curtail consumer spending, while the recent drop in energy prices is projected to severely reduce U.S. investment in the energy sector,” CBO Director Phillip L. Swagel said in a written response to an inquiry from Sen. Chuck Schumer (D-New York). “Recent legislation will, in CBO’s assessment, partially mitigate the deterioration in economic conditions.”
The report also noted that "recent legislation will, in CBO’s assessment, partially mitigate the deterioration" in economic conditions.
“An unusually high degree of uncertainty surrounds these economic projections, particularly because of uncertainty about how the pandemic will unfold this year and next year, how the pandemic and social distancing will affect the economy, how recent policy actions will affect the economy, and how economic data will ultimately be recorded for a period when extreme changes have disrupted standard estimation methods and data sources,” Swagel wrote.
Sen. Chuck Schumer said the estimate shows the urgency of getting more rescue funding passed, CNBC explained.
“In order to avoid the risk of another Great Depression, the Senate must act with a fierce sense of urgency to make sure that everyone in America has the income they need to feed their families and put a roof over their heads,” the senator said in a statement.
Monday's report comes in the wake of a CBO report last month predicting the U.S. economy will expand more in 2021 than previously projected, though the economic fallout from the coronavirus will have a long-lasting impact on the labor market.
The non-partisan agency’s update to its economic projections showed gross domestic product will increase 4.2% in 2021 on a fourth quarter-to-fourth quarter basis after slumping 5.6% this year. That compares with its preliminary April 24 estimate for a 2.8% increase next year.
At the same time, the unemployment rate is seen averaging 11.5% this year and only improving marginally in 2021 to 9.3%, just under the high reached in the 2007-2009 recession. The effects of the coronavirus on the economy will stick around for years to come, particularly for those just entering or new to the labor market.
“The reduction in the number of people employed in 2020 and the persistence of high unemployment through 2021 may have a negative effect on the job prospects and earnings of younger generations that will be felt long into the future,” according to the CBO.
The economy in the second quarter will contract at a historic 37.7% annualized rate, slightly less than the initial forecast. The agency still sees a bounce back in general economic activity in the second half of the year.
It’s a huge shift in expectations from the start of 2020, when CBO analysts upgraded their growth projections for the record-long expansion. Since then, the coronavirus has wreaked havoc on businesses and people, hollowing out the labor market and slowing spending dramatically.
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