Coronavirus Pandemic May Wipe Out $8 Trillion In US Real GDP Over Next 10 years: CBO

The Congressional Budget Office, or CBO, warned in a report released on Monday that the covid-19 pandemic may harm the U.S. economy for the next ten years and wipe out nearly $8 trillion in economic growth.

CBO director Phillip Swagel wrote to Washington politicians that the virus will likely slash U.S. real gross domestic product by 3% through 2030, or a loss of about $7.9 trillion, adjusted for inflation.

Put another way, total nominal GDP output over the next ten years may be $15.7 trillion lower than what CBO had projected as recently as January.

CBO characterized this as a “significant markdown” in GDP due to the pandemic.

“Business closures and social distancing measures are expected to curtail consumer spending, while the recent drop in energy prices is projected to severely reduce U.S. investment in the energy sector,” Swagel wrote. “Recent legislation [stimulus packages and Federal Reserve actions] will, in CBO’s assessment, partially mitigate the deterioration in economic conditions.”

The CBO also forecast that GDP, which shrank 5% in the first quarter, will plunge by 37.7% in the second quarter, which would be the largest quarterly drop in history.

Senators Chuck Schumer (D-N.Y.) and Bernie Sanders (I-Vt.) had requested the information from CBO to fully gauge the longer-term economic impact of the pandemic.

Even with government programs to alleviate economic stresses, some 40 million people have lost their jobs since the pandemic erupted in March.

The jobless rate has surged from 4.4% in March to 14.7% in April. Some analysts think the unemployment rate may have soared to 20% in May when the latest jobs data is released on Friday.

“Last week we learned that over 40 million Americans lost their jobs as a result of this horrific pandemic,” Schumer and Sanders said in a joint statement. “The CBO tells us that if current trends continue, we will see a jaw-dropping $16 trillion reduction in economic growth over the next decade,” referring to the nominal GDP loss projection of the CBO.

Meanwhile, as federal lawmakers consider another $3 trillion economic package, Schumer and Sanders urged them to pass a new stimulus bill.

“In order to avoid the risk of another Great Depression, the Senate must act with a fierce sense of urgency to make sure that everyone in America has the income they need to feed their families and put a roof over their heads,” said Schumer. “The American people cannot afford to wait another month for the Senate to pass legislation. They need our help now.”

Schumer and Sanders also criticized Senate Majority Leader Mitch McConnell (R-Ky.) and Republicans for failing to move quickly on a new stimulus measure.

“How can Senator McConnell look at these catastrophic economic numbers and believe there is no ‘urgency’ to protect America’s working families?" they added.

McConnell has said he will not consider the $3 trillion HEROES [Health and Economic Recovery Omnibus Emergency Solutions] Act passed by the House in May, but will consider a more targeted bill by early July.

Richard Bernstein of RB Advisors, an investment management firm, said of the CBO report: “We’ve stressed government stimulus isn’t actually ‘stimulus’ -- it’s a cushion. [It is] needed but [it is] not high multiplier additive.”

Liz Ann Sonders, chief investment strategist, Charles Schwab & Co., tweeted: “Growth isn’t expected to catch up to previously forecast level until [the fourth quarter of] 2029, making this one long ‘swoosh’ of a recovery.”

The CBO is a nonpartisan federal agency that provides budget and economic information to Congress.