Government Aid Expected To Spur Economy To Pre-COVID Peak In Mid-2021

A new report predicts the U.S. economy and jobs market will take years to recover from the coronavirus economic crash. However, gross domestic product (GDP) will return to pre-COVID levels, in part due to government stimulus packages, by mid-2021.

The bipartisan Congressional Budget Office (CBO) said December’s $900 billion relief bill alone would add about 1.5 percent to the level of GDP this year and next. The recovery is due in part to the overall surge of relief spending Congress authorized in 2020, including aid for households and businesses.

“Over the course of the coming year, vaccination is expected to greatly reduce the number of new cases of COVID-19, the disease caused by the coronavirus,” the CBO said. The agency said inflation-adjusted GDP “is projected to return to its pre-pandemic level in mid-2021.”

However, the agency projected that the unemployment rate will only gradually decline through 2026, with the number of people employed returning to a pre-COVID crisis level only in 2024. The CBO said such industries as travel and hospitality were particularly hard hit — with “job losses concentrated among lower-wage workers.”

The CBO said it will use the latest forecast as the basis for updating its reports to Congress: “The agency plans to release those budget projections later in February and a more detailed report about this forecast later this winter.”

The CBO’s projections assume that “current laws governing federal taxes and spending (as of Jan. 12) generally remain in place and that no significant additional emergency funding or aid is provided.”

The U.S. agency predicted that, as the economy expands, many people will “rejoin the civilian labor force who had left it during the pandemic.”

The full-year 2020 GDP shrank 3.5 percent, the first economic contraction since 2009 and the biggest drop since 1946, another U.S. agency reported last week (Jan. 28). The U.S. Bureau of Economic Analysis said GDP had gone up in the fourth quarter as the economy recovered.