Other grim numbers include an expected 12% quarterly nosedive of the GDP and 14% unemployment during the second quarter of 2020.
(CN) — Congressional Budget Office projections for the economic fallout caused by the pandemic painted a grim picture Friday: a national budget deficit expected to grow to $3.7 trillion this year.
The latest CBO projections account for the economic effects of recent legislation to fund increased health care costs to respond to the Covid-19 pandemic, in addition to stimulus packages to keep small businesses and workers afloat while complying with “stay at home” orders to flatten the curve of the pandemic.
The projections are based on keeping social distancing measures in place through June, but also account for the possibility the pandemic could re-emerge after stay-at-home orders are loosened or lifted.
“To account for that possibility, social distancing is projected to continue, although to a lesser degree, through the first half of next year,” according to the report.
While the federal budget deficit is projected to top $3.7 trillion, the gross domestic product is expected to nosedive 12% during the second quarter this year, equivalent to a decline at an annual rate of 40% for that quarter.
The federal deficit would roughly be $2.1 trillion next year, according to the CBO.
Federal debt held by the public is projected to be 101% of the GDP by the end of the fiscal year, according to the CBO.
Unemployment is also expected to average 14% during the second quarter, up from less than 4% in the first quarter. More than 24 million new unemployment insurance claims have been reported since mid-March.
The projections considered estimated effects of pandemic-related legislation enacted March 4, March 18, March 27 and April 24. Those measures include the Coronavirus Preparedness and Response Supplemental Appropriations Act, Families First Coronavirus Response Act, CARES Act and Paycheck Protection Program and Health Care Enhancement Act.
While the second quarter is expected to result in a sharp economic contraction due to social distancing measures, the CBO said economic activity should increase in the third quarter “as concerns about the pandemic diminish and state and local governments ease stay-at-home orders, bans on public gatherings and other measures restraining economic activity.”
Economic and labor market disruptions are expected to persist however, and interest rates on federal borrowing are expected to remain low.
“Increases in consumer spending are expected to more than offset further declines in business investment during that period,” according to the CBO.
But an anticipated 2.8% GDP increase on a fourth quarter-to-fourth quarter basis in 2021 is significantly less than the 6.7% increase the CBO had projected in its economic outlook this past January, pre-coronavirus.
The skyrocketing unemployment rate during the second and third quarters of 2020 reflects a net projected loss of nearly 27 million jobs and the exit of 8 million workers from the labor force.
“The labor market is expected to improve after the third quarter, with a rebound in hiring and a significant reduction in furloughs as the degree of social distancing diminishes—leading to an increase in business activity and an increase in the demand for workers,” according to the CBO report.
As a result, the unemployment rate is expected to decline to 9.5% by the end of 2021, six points higher than initial economic projections from this past January.
A spokeswoman for the CBO said the office would not be commenting on the projections beyond its published report.
The CBO plans to release details on its economic outlook for 2020 and 2021 in mid-May.