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) – The U.S. economy faces a bleak immediate future with gross domestic product likely contracting 12% in the second quarter and the federal deficit growing to $3.7 trillion, while the unemployment rate will probably crest at 16% in the third quarter, according to projections released by the Congressional Budget Office on Friday.

Still, the nonpartisan fiscal analysts showed hope for a mild upswing once the constraints of the global coronavirus pandemic are relaxed. Even though unemployment will remain above 10 percent through 2021, GDP will grow again in the third quarter, by 5.4%, and keep expanding through the end of the year, the office said.

“In the third quarter, economic activity is expected to increase, as concerns about the pandemic diminish and state and local governments ease stay-at-home orders, bans on public gatherings, and other measures restraining economic activity,” the CBO said in its projections. “However, challenges in the economy and the labor market are expected to persist for some time. Interest rates on federal borrowing are expected to remain quite low in relation to rates in recent decades.”

Reporting by Lisa Lambert and Susan Heavey; Editing by Chizu Nomiyama

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