The economy will come surging back from last year’s pandemic-induced malaise, with the kind of growth that hasn’t been seen since the 1990s, the Congressional Budget Office said Monday — though taxpayers have had to spend dearly to keep things on track.
Last year’s downturn wasn’t as rough as was once anticipated, in part because the economy reopened earlier and stronger than anticipated, CBO said in its new economic projection. The analysts had foreseen a 5.9% drop in real gross domestic product, but in fact it only trimmed by 2.5%.
The $2.3 trillion spending bill Congress cleared in December is a key part of the good news, helping support the economy at a crucial time when social distancing was still biting deeper than the analysts had expected, CBO said. The $600 checks are already going out, the unemployment benefits are winding their way through the economy and the business loans are also helping, the analysts said.
The analysis is likely to play a signifiant role as Congress debates another round of spending proposed by President Biden.
CBO’s analysis doesn’t include any of Mr. Biden’s early executive orders or the $1.9 trillion plan he’s asked Congress to pass.
Many Republicans say they want to see the effects of the current spending play out before turning to another bill, but Democrats say the recovery is too tenuous to trust to chance, and a major infusion of cash is needed.
CBO analysts said there’s significant uncertainty about the projections, given the questions about the virus, and a lot depends on the pace of vaccinations. The analysts had produced an optimistic scenario and a pessimistic scenario, and the actual pace is coming in right in between those.
Faster vaccinations means a faster recovery, the agency’s staff said.
All told, the federal government has now earmarked about $4 trillion to pandemic relief, and whatever Mr. Biden wins from Congress will add to that total — all of it tacked on to the deficit.
Even without a bill, CBO says real gross domestic product will rise 4.6% on a year-to-year basis in 2021, after a 3.5% drop last year.
Growth will remain above 2% through the middle of the decade, which is higher than pre-pandemic projections.
And that’s true even though CBO says social distancing will now last longer than previous anticipated.
The agency’s staffers said while hotels and travel are still suffering deeply, other areas of the economy have adapted to social distancing rules better than anticipated.
As of now, CBO projects that while people still may be wearing masks at grocery stores or taking other pandemic-related steps, social distancing will no longer be a net drag on the economy as of this summer.
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