Key Highlights
- Congressional Budget Office (CBO) projects COVID shutdown to induce sharpest downturn and push US budget deficit to highest levels since 1940’s
- CBO thinks economy likely to shrink 12% in Q2 and jobless rate to average 14%
- CBP projects federal budget deficit to reach $3.7T by end of fiscal year on September 30, an increase of +$2.7T since March 2020
Even before the financial impacts of the COVID pandemic hit, the US government was heading towards its worst fiscal year since 2012. Our budget deficit grew +8% in the first half of the 2020 fiscal year hitting $743.6B from October-March 2020 compared with $691.2B during the same time period one year ago, according to the US Treasury.
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Now, of course, that $743.6B deficit looks like a walk in the park as the Congressional Budget Office is projecting a federal budget deficit of $3.7T by the end of the fiscal year on September 30, 2020. As a portion of the GDP, such a deficit projection would end the fiscal year at nearly +18%, the highest level since the year World War II ended and up+4.6% from 2019.
Here’s a staggering stat, according to the CBO – the federal debt held by the public is projected to hit 101% of the gross domestic product by the end of September 2020, up from 79% at the end of fiscal year 2019! The only good about this projection is that due to interest rates being so low, net-borrowing costs for the government will decline.
Additional breathtaking projections from the CBO as published in a blog post by CBO Director Phillip Swagel are based upon assumptions subject to “enormous uncertainty.” These projections include…
- Job losses of 27M in Q2 and Q3
- Economy to shrink to -40% if COVIC persists for a year
- Social distancing to continue through 2021 but to diminish by approximately 75% in Q3 and Q4 relative to Q2 2020 and to continue easing into 2021
- GDP expected to contract -5.6% in 2020 and to grow +2.8% in 2021
- Unemployment to top out at 16% in Q3 and then to decline to 9.5% by end of 2021
Thanks to Paul Kiernan writing for Morningstar and The Wall Street Journal.
Also read: What’s Coming Next? “The Worst Economy in Our Lifetime”, Podcast: Todays Urgent Real Estate Headlines | Coming Real Estate Market Shift?, Real Estate Stocks Slammed by Coronavirus Stock Market Fears
