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US CBO sees economy economy to contract 12-pct, debt to top 101-pct

AFP – The US economy is expected to contract by double digits as unemployment surges, while the federal deficit is seen exploding to $3.7 trillion in 2020, the Congressional Budget Office said Friday.

US GDP in the April-June period is forecast to decline by 12 percent while the jobless rate reaches 14 percent as a result of the widespread lockdowns to contain the coronavirus pandemic, Phil Swagel, head of the independent CBO, said in a blog post.

The deficit estimate is more than triple the CBO’s prior forecast last month, and comes after Congress rushed out multiple aid packages totaling nearly $3 trillion. For 2021, the budget gap is expected to narrow to $2.1 trillion.

“The economy will experience a sharp contraction in the second quarter of 2020 stemming from factors related to the pandemic,” Swagel said, noting that the forecasts include the expected effects of the federal rescue effort.

Meanwhile, as the Federal Reserve has pledged to buy unlimited amounts of US Treasury debt, CBO sees federal debt levels rising to 101 percent of GDP by the end of the fiscal year in September.

The agency sees growth returning in the second half of the year as lockdowns are eased, but warned that the “challenges in the economy and the labor market are expected to persist for some time.”

In 2021, real GDP is projected to grow by 2.8 percent, well below the previous forecast.

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