Washington: The Congressional Budget Office (CBO), a federal agency within the legislative branch of the US government, forecast that the country’s fiscal deficit would triple to $3.7 trillion while unemployment would reach 16 per cent due to the COVID-19 crisis.
The CBO, a nonpartisan agency that provides budget and economic information to the Congress, said on Friday that the deficit at the end of the 2020 financial year would stand at $3.7 trillion and would come down to $2.1 trillion the following fiscal year.
Prior to the pandemic, the CBO had projected a $1 trillion budget deficit for both fiscal years.
The country’s budget deficit had topped $1 trillion in 2019 for the first time since 2012.
The projected budget deficit would be 17.9 per cent of the US’ GDP in 2020 and 9.8 per cent in 2021.
Last year, the deficit was 4.6 per cent of the country’s GDP.
Meanwhile, federal debt held by the public would be 101 per cent of the GDP by the end of the current financial year.
The CBO also projected a contraction of the US economy with the GDP falling by 5.6 per cent this year, dragged down by a 39.6 per cent drop in the second quarter.
The CBO expects the economy to rebound in the third quarter with a growth of 23.5 per cent and grow at 10.5 per cent in the fourth quarter.
“The economy will experience a sharp contraction in the second quarter of 2020 stemming from factors related to the pandemic, including the social distancing measures put in place to contain it,” CBO Director Phillip Swagel said in the report.
With regard to the rate of unemployment, the CBO projected an increase of 16 per cent in the third quarter of the 2020 fiscal year but said that the labor market was expected to improve after that to leave the rate at 11.7 per cent in the last quarter of the year.
“The labour market is expected to improve after the third quarter, with a rebound in hiring and a significant reduction in furloughs as the degree of social distancing diminishes—leading to an increase in business activity and an increase in the demand for workers,” the CBO said.
By the end of 2021, the unemployment rate would have fallen to 9.5 per cent – about 6 percentage points higher than the rate in CBO’s economic projection in January 2020 – according to the agency.
The unemployment rate before the coronavirus crisis was 3.8 per cent. However, in the last five weeks, nearly 27 million jobs have been destroyed due to the halt in economic activity in the country on account of the COVID-19 outbreak.
The Congress has already approved four economic bailout packages worth nearly $3 trillion.
The US is the worst affected country in the world with 890,524 cases of people infected with the virus and 51,017 deaths.