The non-partisan Congressional Budget Office just released revised economic, deficit, and debt forecasts for fiscal years 2020 and 2021. These projections reflect dramatic changes in the U.S. economy resulting from the outbreak of the novel coronavirus and subsequent fiscal policy responses by the federal government.
In the second quarter of calendar year 2020, CBO expects the U.S. economy will contract significantly as a result of nationwide stay-at-home orders and the temporary shuttering of non-essential businesses. Specifically, the agency expects real (inflation-adjusted) GDP to decline by 11.8 percent during the second quarter, equivalent to an annualized rate of nearly 40 percent. CBO also revised it’s estimate for unemployment and interest rates.
The virus-induced economic shock will also lead to substantially higher deficits and debt. Before the pandemic hit, CBO was already projecting trillion-dollar deficits in 2020 and 2021. Recent large-scale job losses, as well as record-level spending on federal automatic stabilizers (unemployment, Medicaid, and food stamps) and loan programs for small and large businesses will push federal deficits even higher. According to CBO, if no additional emergency funding is provided beyond the current four bills, the federal deficit will total $3.7 trillion in fiscal year 2020 and $2.1 trillion in 2021. To finance these deficits, the Treasury will need to issue additional debt, driving up the ratio of debt held by the public as a percent of real GDP to 101 percent by the end of fiscal year 2020.
CBO has advised that these projections are preliminary and will be finalized in the next baseline update, typically released in August.