US GDP will drop at an annualized rate of 38% in the second quarter
The United States' Gross Domestic Product (GDP) will fall at an annualized rate of 38% in the second quarter of this year due to social distancing measures to contain the spread of the coronavirus, which will mark the end of the longest expansion of the US economy since World War II, according to forecasts published Tuesday by the Congressional Budget Office (CBO).
In a report with its provisional projections for the remainder of the year and 2021, the CBO anticipates that the US labor market may experience in the second quarter of 2020 "the greatest deterioration since the 1930s," with an average unemployment rate of 15% compared to 4% registered in the fourth quarter of 2019.
"The CBO estimates that real gross domestic product will contract 11% in the second quarter of this year, which at an annual rate is equivalent to a decrease of 38 percent," the document reads.
In addition, the fiscal deficit is projected to increase this year to $ 2.2 trillion this year and to decrease to about $ 600 billion in fiscal year 2021, as a result of approved assistance programs to reduce the economic impact of the pandemic.
Those amounts represent around 11% of nominal GDP this year and 3% in 2021.
"The pandemic and the social distancing measures taken to contain it have greatly altered economic activity, causing a wave of job losses and ending the longest expansion since World War II," the Budget Office said.
The document projects that the economy will begin to recover from the second half of this year, as concerns about the pandemic diminish and that state and local authorities ease orders to stay home and prohibitions on public meetings, among others.
Although he warns that "the persistence of social distancing will keep economic activity and labor market conditions suppressed for some time."
Measures to prevent the spread of the disease, according to the CBO, have led to a collapse of consumer spending and many companies to reduce or cease operations, while choosing to fire or suspend their employees.
On unemployment, the CBO details, it increased from 3.5% in February to 14.7% in April, reflecting "a decrease of more than 25 million in the number of employed people and a reduction of more than 8 million in the size of the workforce. "
On Tuesday, Treasury Secretary Steven Mnuchin warned of the "risk of permanent damage" to the US economy. if confinement for the SARS-CoV-2 coronavirus pandemic is maintained, by virtually appearing before the Senate banking committee to assess the economic prospects and effectiveness of the rescue package approved in April worth $ 2.2 trillion, the largest in the history of the country.
While the President of the Federal Reserve (Fed), Jerome Powell, asked Congress at that same hearing for more fiscal stimulus and considered that the "measures taken to contain the virus represent an investment in our individual and collective health."
