The Congressional Budget Office on Tuesday released an updated economic forecast, predicting that GDP will shrink at an annual rate of 38% in the second quarter and that the unemployment rate will peak at nearly 16% in the third quarter. Even as the economy beings to recover over the second half of this year, CBO expects the unemployment rate to remain high, averaging 9.3% in 2021 as the “persistence of social distancing will keep economic activity and labor market conditions suppressed for some time.” It sees the unemployment rate falling to just 8.6% by the end of 2021.
Those projections are actually slightly better than CBO’s previous estimates, released in April, but they underscore just how lasting the economic damage is likely to be. "Compared with their values two years earlier, by the fourth quarter of 2021 real GDP is projected to be 1.6 percent lower, the unemployment rate 5.1 percentage points higher, and the employment-to-population ratio 4.8 percentage points lower," the report said.
The budget scorekeeper also said that the four pandemic-related laws enacted by Congress since the beginning of March are projected to increase the federal deficit by $2.2 trillion in fiscal year 2020 and by $600 billion in fiscal year 2021. Those figures equate to about 11% of nominal GDP this year and 3% in fiscal 2021.