“CBO projects a federal budget deficit of $3.3 trillion in 2020, more than triple the shortfall recorded in 2019”, the agency said. “That increase is mostly the result of the economic disruption caused by the 2020 coronavirus pandemic and the enactment of legislation in response. At 16.0 percent of gross domestic product, the deficit in 2020 would be the largest since 1945”.
The CBO also noted that the projected deficit for 2021 will be 8.6 percent of GDP. It said that between 1946 and 2019, the deficit as a share of GDP has been larger than that only twice.
“As a result of those deficits, federal debt held by the public is projected to rise sharply, to 98 percent of GDP in 2020, compared with 79 percent at the end of 2019 and 35 percent in 2007, before the start of the previous recession. It would exceed 100 percent in 2021 and increase to 107 percent in 2023, the highest in the nation’s history. The previous peak occurred in 1946 following the large deficits incurred during World War II. By 2030, debt would equal 109 percent of GDP”.
The swelling of the US budget and deficit comes after stimulus measures of more than $2 trillion passed by Congress this year to rescue the economy from the coronavirus pandemic.
The US economy shrank at its fastest pace in history in the second quarter of 2020, contracting by 32.9 percent amid widespread lockdowns due to the pandemic. While economic and labor market data since have sometimes been encouraging, the recovery has still been spotty.
The Federal Reserve cautioned in its Beige Book report on Wednesday that the COVID-19 was throttling US economic recovery as many districts see slowing growth even as manufacturing activity and consumer spending rise, helped by strong auto sales, among others.