It’s pretty clear that the budget deficit will soar as the coronavirus wreaks havoc on the economy, but on Friday the Congressional Budget Office put a number on the expected shortfall in fiscal year 2020: $3.7 trillion.
The new analysis from CBO director Phill Swagel includes preliminary estimates for how the economy will perform through the end of 2021 – and some of the numbers are pretty shocking. Here’s a rundown:
- The economy is projected to shrink by about 12% in the second quarter of 2020 – an annualized rate of 40%. For the full calendar year, GDP is projected to decrease by 5.6%.
- The unemployment rate will average about 15% in the second and third quarters, up from less than 4% in the first quarter. The increase reflects the loss of 27 million jobs, with 8 million people leaving the labor force.
- The employment picture will begin to improve in the fourth quarter, but the labor market will struggle to recover completely, with the unemployment rate still at 9.5% at the end of 2021.
- The national debt (federal debt held by the public) will rise to 101% of GDP in fiscal year 2020.
- The deficit is projected to equal 17.9% of GDP in the current fiscal year and 9.8% of GDP in 2021, sharply higher than the 4.6% recorded in 2019.
- Interest rates will remain at historically low levels, with 10-year Treasury notes averaging just 0.7% in 2021, only slightly higher than the current 0.6%.
The CBO said its analysis assumes there is no further legislation to provide additional federal aid. If lawmakers and the White House are able to negotiate another relief package, as many expect, the deficit numbers would be that much larger.
Whatever the size of the deficit, the CBO noted that low interest rates are making increased debt loads more affordable. “Even with increased federal borrowing, declines in interest rates mean that net interest outlays will decline,” the report says.
Michael Linden of the Groundwork Collaborative, a liberal-leaning Washington group that advocates for a fairer economy, said that low interest rates should encourage policymakers to take further steps to keep the economy afloat. “It means spend money to boost the economy and don't worry about debt,” he wrote Friday.