The Concord Coalition said that new 10-year economic projections published by the Congressional Budget Office (CBO) demonstrate why Congress and the president should be increasingly focused on adopting a COVID-19 relief package that is truly timely, targeted, and temporary.
In their report, the CBO projects a stronger economy than it did in July 2020. The economic downturn “was not as sharp as expected” and “the first stage of the recovery took place sooner and was stronger than expected.” Going forward, the CBO projects vaccinations will reduce the number of coronavirus cases and, consequently, the extent of social distancing. As a result, economic activity will accelerate more rapidly than originally projected.
Specifically, real GDP is expected to return to its pre-pandemic level by mid-2021, one year sooner than CBO’s last report, the labor market will reach its pre-pandemic level of jobs by 2024, and real GDP will exceed its potential – its maximum sustainable level – in early 2025, three years earlier than projected in last year’s report. Given this acceleration, CBO revised its 2021 inflation forecast (as measured by the consumer price index) from 1.2 to 1.9 percent – an increase of more than 50 percent.
“Fortunately, the CBO economic outlook shows an economy that is likely to gain momentum over the year, but fighting the virus must remain the highest priority. The economy will not fully recover, and continued fiscal support will be needed, so long as it is necessary to impose widespread restrictions on economic activities to bring the virus under control. Lawmakers should thus focus their efforts on specific needs – a nationwide vaccination campaign, economic assistance for individuals and businesses who lost a significant share of income to the constraints imposed by the virus, and getting our kids back to school safely,” said Concord Coalition Executive Director Robert L. Bixby.
“The structural deficit that predated this pandemic was already unsustainably large. As the economy regains its footing, attention must focus on a policy agenda that is pro-growth and fiscally responsible. It may be many months before policymakers can turn their attention from the immediate crisis to the post-pandemic economy, but it is not too soon to begin thinking about what should be done when that time arrives.”
CBO will use this economic forecast as the basis for updating its budget projections for fiscal years 2021 to 2031. It is important to note that the forecast is based on information available as of January 12, 2021, and includes the economic effects of legislation enacted up until that point. It does not incorporate the economic effects of potential legislation, such as the $1.9 trillion COVID-19 relief and rescue plan advocated by the Biden Administration.