CBO projects a 38% drop in GDP in the Second Quarter

On Tuesdays, the Congressional Budget Office released its outlook for economic growth, federal budget, and the unemployment rate for the second quarter, as nearly 26 million Americans remain unemployed. However, it predicted job gains later in the year at a lesser rate until 2021.

The CBO has projected a 38% plunge in the GDP on an annualized basis by the end of the second quarter, with more unemployed Americans compared to the end of 2019.

The Congressional Budget Office’s forecasts are quite similar to that of Wall Street economists and slightly differ from that of the Atlanta Federal Reserve, which predicts GDP to drop about 42% between April and June.

Collectively, if the outlooks turn out to be accurate, the United States will experience a very terrible drop, probably the worse since the coronavirus pandemic.

In a narrative attached to its projections, the CBO said they expect the economy to begin “recovering during the second half of 2020 as concerns about the pandemic diminish and as state and local governments ease restrictions.”

Adding that, there will be an improvement in job growth “materially” in the third quarter as social distancing policies also diminish. Although, there is a good chance that social distancing will “keep economic activity and labor market conditions suppressed for some time.”

The office also warned that the “decline in economic activity has been so rapid and so recent that the depth of the downturn is still uncertain, and the data on spending are preliminary and incomplete.

In a bid to keep the economy afloat and lessen economic impacts of the coronavirus pandemic in the United States, the US government authorized the release of financial support of $2 trillion in March and $3 trillion budget that is about to be signed for salvaging the economy from the further impact of the coronavirus pandemic. The CBO has said that the move would only increase the federal deficit by $2.1 trillion in fiscal 2020 and $600 billion in 2021. Equaling 11% of nominal GDP in 2020 and 3% in 2021.

The CBO projects:

• The federal budget deficit will total $3.7 trillion

• Interest rates on 3-month Treasury bills and 10-year Treasury notes will average 0.1% and 0.6%, respectively in the second quarter of 2020.

• The unemployment rate will average 14% during the second quarter of 2020 and 11.4% during the calendar year 2020, before falling slightly to 10.1% in 2021.

• GDP will fall by 11.8% this quarter and 5.6% in 2020 and then grow by 2.8% in 2021.