CBO: a lost decade is looming for the US economy

CBO: a lost decade is looming for the US economy

The CBO warns in a new analysis that the pandemic will reduce cumulative economic output over the next 10 years by $ 7.9 trillion, or 3% of GDP over the decade, compared to its January projections. Without taking inflation into account, the damage totals $ 15.7 trillion, or 5.3% of GDP.

The CBO said the reviews reflect expectations of lower consumer spending caused by business closure and social distancing. In addition, the recent fall in energy prices is expected to “severely” reduce investment in that sector, the CBO warned.

Recent legislation, which includes more than $ 2 trillion in stimulus, will only partially mitigate the economic consequences caused by the pandemic, the CBO said.

The big warning: The CBO warned that there is an unusually high degree of uncertainty surrounding its forecasts because the course of the pandemic is unknown and how the economy will respond is unclear.

The report by respected government number analysts further challenges hopes of an early economic recovery from the pandemic, which had been a common topic of conversation in the early days of the crisis.

More than GDP: If recent history is a guide, it could take even longer for the labor market and household wealth to recover.

The 2008 global financial crisis took a much smaller bite out of GDP than experts expect to see as a result of the pandemic. But 10 years after the Great Recession began, the labor force participation rates of older workers remained depressed in the United States, and household wealth had only begun to recover.

Neil Shearing, the group’s chief economist at Capital Economics, said most major economies are in a similar position, at least in the medium term, despite the recent recovery of high-frequency data such as road traffic and electricity consumption.

See also  When are the US election results and exit polls, and when will we know the winner of the 2020 presidential race?

“While the drop in output caused by the virus appears to have bottomed out, the recovery is likely to be slow and uneven. Most economies are likely to be below their pre-virus GDP paths by the end of our central forecast horizon. in 2022, “he wrote in a research note on Monday.

Shearing cited three big reasons why a high-frequency data recovery doesn’t tell the whole story.

Reason 1: The recovery follows an extreme economic blockade. “The fact that activity is recovering must be seen in this context of the large loss of production incurred during the blockades. Production in most major economies is still somewhere between 15% and 25% of pre-virus levels, “he said.

Reason 2: High-frequency data doesn’t tell us much about what’s happening with demand, one of the biggest factors in any rebound. “The fact that more trips are made is encouraging, but the extent to which this will translate into a recovery in consumer spending is unclear,” he said.

Reason 3: Governments and central banks still need to figure out how to go from crisis mode to recovery, and reopen their economies in ways that do no more harm.

“Policy must move from fighting a crisis to supporting recovery,” Shearing said. “Making this transition will not be easy. One of the biggest risks in the short term is that governments move too fast to adopt a new round of austerity.”

Check Also

Dubai flooding disrupts major airport operations during historic weather event with torrential rains in UAE

Dubai International Airport Hit by Heaviest Rainfall on Record Dubai, UAE – In a rare …

Leave a Reply

Your email address will not be published. Required fields are marked *