The U.S. economy will plunge by 40% this financial quarter and the unemployment rate will soar to 14%, the Congressional Budget Office said Friday.
The unemployment rate will eventually rise to 27% — a number not seen since the Great Depression — and the recession caused by shutting down the economy during the coronavirus panic will nearly quadruple the federal budget deficit to $3.7 trillion, the CBO said.
There’s more bad news. The 2020 budget deficit will explode after four coronavirus response bills — with a price tag of $2.7 trillion and rising — will balloon the national debt to nearly $25 trillion in just the remaining six months of the current fiscal year, the report says.
The rate of debt and deficit haven’t happened since World War II.
But the report did offer a glimmer of hope.
“The labor 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. In particular, the unemployment rate is projected to decline to 9.5 percent by the end of 2021. Under that projection, the unemployment rate at the end of 2021 would be about 6 percentage points higher than the rate in CBO’s economic projection produced in January 2020, and the labor force would have about 6 million fewer people.”
More than 26 million Americans have filed for unemployment benefits in the last five weeks.
Nearly every state has shut down businesses deemed nonessential, which includes bars, restaurants and most retail stores, but The Associated Press reported last week that “white collar professional occupations, including software programmers, construction workers and sales people” are beginning to see mass layoffs.
“Collectively, the job cuts could produce unemployment on an epic scale. Up to 50 million jobs are vulnerable to coronavirus-related layoffs, economists say — about one-third of all positions in the United States. That figure is based on a calculation of jobs that are deemed non-essential by state and federal governments and that cannot be done from home,” the AP reported.
The coronavirus sweeping across the world will likely aLso lead to the worst financial crisis since the Great Depression, the International Monetary Fund (IMF) said last week.
The IMF predicted the global economy will shrink by 3% in 2020, a dramatic change from its prediction in January, when the IMF projected global gross domestic product (GDP) would rise 3.4% this year.
“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” Gita Gopinath, the IMF’s chief economist, said in the latest “World Economic Outlook” report.
The latest IMF forecasts projects the U.S. economy will shrink by 5.9% this year, with the Euro Zone contracting by 7.5%. Italy and Spain, where the virus is widespread, are expected to be particularly hard hit, with their economies contracting by by 9.1% and 8%, respectively.