Washington (AFP) - As data showing the severe economic damage from the coronavirus pandemic continues to pile up, the Congressional Budget Office said Friday the US budget deficit will explode this year to $3.7 trillion.
The estimate is more than triple the CBO's forecast last month, and comes after Congress rushed out multiple aid packages totaling nearly $3 trillion to help workers and businesses amid the widespread lockdowns imposed to contain the coronavirus pandemic.
As the US death toll from COVID-19 hit 50,000 and most businesses nationwide remain shuttered or sharply curtailed, GDP in the April-June period is forecast to decline by 12 percent while the jobless rate averages 14 percent, Phil Swagel, head of the independent CBO, said in a blog post.
"The economy will experience a sharp contraction in the second quarter of 2020 stemming from factors related to the pandemic," Swagel said, noting that the forecasts include the expected effects of the federal rescue effort.
The new estimates are far worse even than those issued in early April, as the CBO reviewed data through Thursday, when the Labor Department showed job losses soaring to more than 26 million since mid-March.
Private data and government reports have also shown home sales collapsing, while consumers are becoming more pessimistic and spending less.
And with the near total shutdown of airline travel, the Commerce Department on Friday reported that new orders for durable goods plunged 14.4 percent, largely driven cancelations of orders for Boeing aircraft.
That was caused by both the pandemic and the crisis over the 737 MAX, which has been grounded for more than a year after two fatal crashes.
Though worrisome, those reports only cover March, and economists expect things to be much worse on all fronts in April, when the shutdown of activity was more widespread and lasted the entire month.
"The recession triggered by COVID-19 is abrupt, deep and global in scope. Those looking for a quick snapback are overlooking hurdles to a comeback," Grant Thornton chief economist Diane Swonk said in an analysis.
Rising US debt
Even as states like Georgia try to return to business as usual, Swonk said the economic restart "will be further complicated by the uneven pace (by which) different regions and different countries open."
Swagel said the CBO sees growth returning in the second half of the year as lockdowns are eased, but he also warned that the "challenges in the economy and the labor market are expected to persist for some time."
The forecasts call for growth of 5.4 percent in the third quarter and 2.5 percent in the final three months of the year.
"Increases in consumer spending are expected to more than offset further declines in business investment during that period," Swagel said.
In 2021, real GDP is projected to grow by 2.8 percent, well below the previous forecast, while the budget gap is expected to narrow to $2.1 trillion, according to the forecast.
Meanwhile, as the Federal Reserve has pledged to buy unlimited amounts of US Treasury debt, CBO sees federal debt levels rising to 101 percent of GDP by the end of the fiscal year in September.