FILE PHOTO: A bicyclist rides through Times Square during evening rush hour, during the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., April 15, 2020. REUTERS/Bryan R Smith
WASHINGTON (Reuters) – A nationwide business shutdown and a surge in U.S. government spending will nearly quadruple the federal deficit to a record $3.7 trillion this fiscal year, as a gyrating American economy reacts to the coronavirus pandemic, congressional forecasters said on Friday.
U.S. gross domestic product will plunge by nearly 40 percent on an annualized basis in the second quarter, according to the nonpartisan Congressional Budget Office. But the CBO forecast an economic resurgence in the second half of the year, and said unemployment would crest at 16 percent but remain in double digits throughout 2021.
The CBO report illustrated the fiscal pressures lawmakers in Congress face as they prepare to craft new legislation to respond to the coronavirus pandemic. Congress has already passed $3 trillion in spending on healthcare, small businesses and other measures to combat the outbreak and its economic effects.
“If the laws currently in place governing spending and revenues generally remained unchanged and no significant additional emergency funding was provided, the federal deficit would be roughly $3.7 trillion in fiscal year 2020 and $2.1 trillion next year,” the CBO said. In March, the CBO projected deficits of just over $1 trillion in each of those years.
The federal debt would equal 101% of GDP by Sept. 30, when the 2020 federal fiscal year ends, and would grow to 108% by the end of fiscal 2021, CBO said.
The agency predicted that real GDP will decline 5.6 percent in 2020 and then grow 2.8 percent in 2021. But economic activity for 2021 would still be 6.7 percent below a projection the CBO issued in January.
Reporting by Lisa Lambert and Susan Heavey; writing by David Morgan; Editing by Chizu Nomiyama and Jonathan Oatis