Financial recovery from the coronavirus-driven economic downturn of 2020 will take this year and the next to really get started.
That’s the sobering prognosis from the Congressional Budget Office, which on Friday released April projections on the economy and national debt.
These projections are the first from the CBO to encompass federal coronavirus relief spending bills passed in recent weeks.
The hits will be hardest in the short-term, but the federal guidance does not point to anything approaching a quick recovery.
In the current quarter, the CBO estimates a decline in the gross domestic product of 12%. Annualized, that GDP decline would be equivalent to a 40% drop year over year.
Since coronavirus shutdowns began to affect the economy last month, 26 million Americans filed for unemployment. By the end of the quarter, unemployment is expected to be 14%.
Through 2021, unemployment will remain around 10%.
The FY 2020 budget deficit, meanwhile, is expected to come in at $3.7 trillion, with debt exceeding the GDP by the end of the fiscal year.
The CBO’s own guidance, meanwhile, suggests that this is just a “rough assessment” of a picture that has yet to fully emerge, with more data informing forecasts later this year.
The forecast is rooted in qualified optimism about the path forward, including relaxation of current restrictions.
“In the third quarter, economic activity is expected to increase, 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. However, challenges in the economy and the labor market are expected to persist for some time,” the CBO forecast notes.
The demand side of the economy is slated to recover this year.
“After a sharp contraction in the second quarter, economic growth is expected to average about 17% at an annual rate in the second half of calendar year 2020,” the CBO contends, with consumer spending driving the resurgence.
2021’s forecast calls for a more measured 2.8% growth rate, something roughly in line with recent years before the crisis struck. But expectations are that GDP will be nearly 7% below the pre-coronavirus expectation in January.