US budget deficit could soar to $3.7 trillion this year amid coronavirus spending spree on healthcare, economy
The US continues to witness its dual challenges getting more serious with each passing day as a result of the COVID-19 pandemic. While the death toll has gone past 51,000, the economy has also taken a serious battering with more 26 million jobs getting wiped out.
Amid all this, on Friday, April 24, the Congressional Budget Office (CBO) came up with some more alarming news. Its latest report said the federal budget deficit will soar to $3.7 trillion as a result of the government’s spending on testing, healthcare and aid to businesses and households.
The CBO reported that the 2020 budget deficit will explode after four bills that were passed by the Congress and signed by President Donald Trump promised to add more than $2 trillion onto the $24.6 trillion national debt in just six months of the current fiscal. That is more than twice the deficit record set during Barack Obama’s first year in the presidency. It also said the federal debt held by the public is likely to be 101 percent of the GDP by the end of 2020 fiscal and 108 percent by the end of 2021 fiscal.
On unemployment
On the issue of unemployment which is heading north ever since the economy went into a downturn, the CBO record came up with some sinister predictions as well.
“The unemployment rate is projected to average 15 percent during the second and third quarters of 2020, up from less than 4 percent in the first quarter,” it said.
“The unemployment rate is the number of jobless people who are available for and seeking work, expressed as a percentage of the labor force. The increase in that rate in the second and third quarter reflects the net effect of a projected loss of nearly 27 million in the number of people employed and the exit of roughly 8 million people from the labor force.”
According to the Department of Labor, another 4.4 million Americans filed initial unemployment claims in the week that ended on April 18. Though it was less than 5.2 million doing the same the previous week, it saw the fifth consecutive week with more than three million filing unemployment claims, taking the total number to 26.5 million.
The CBO report also cautioned that the inflation-adjusted GDP is likely to decline by about 12 percent during the second quarter which is equivalent to a decline at an annual rate of 40 percent for that very quarter.
On the economic output
Talking about the economic output, the CBO report said after a sharp contraction in the second quarter, the economic growth is expected to average around 17 percent at an annual rate in the second half of 2020.
“Increases in consumer spending are expected to more than offset further declines in business investment during that period. In 2021, real GDP is projected to grow by 2.8 percent, on a fourth-quarter-to-fourth-quarter basis. Under that projection, real GDP at the end of 2021 would be 6.7 percent below what CBO projected for that quarter in its economic outlook produced in January 2020,” it said.
On an optimistic note, the CBO report added that the labor market is likely to get better after the third quarter with hiring returning and reduction in furloughs with social distancing restrictions getting easier. It said the unemployment rate is projected to go down by 9.5 percent by the end of the next year.