US Congressional Budget Office: "Economy to Worsen in Second Half... Abnormal Uncertainty"

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The US Congressional Budget Office (CBO) forecasted that the US economy will worsen further in the second half of this year due to "abnormally high uncertainty." Last month, when the US Department of Labor announced that 4.8 million jobs were created, President Donald Trump responded optimistically, saying, "This proves that our economy is coming back to life," but the CBO quickly poured cold water on this.

According to Bloomberg News and others on the 2nd (local time), the CBO lowered its forecast for the US Gross Domestic Product (GDP) growth rate this year to -5.9%, down 0.3 percentage points from the May forecast, in its economic outlook update report released that day. The CBO explained the reason for the downgrade as based on "abnormally high levels of uncertainty in several factors, including how the COVID-19 pandemic will progress, how effective monetary and fiscal policies will be, and how the global financial markets will respond to future government debt and fiscal deficits."

However, the economic growth forecast for next year was 4.8%, exceeding the May forecast of 4.2%. The CBO said, "The first and second quarters were the worst economic conditions since World War II," and "although rapid growth is expected through the second half of this year and the first half of next year, the pace will be slower than initially expected."

Regarding the labor market, it also predicted a significant weakness compared to before the spread of COVID-19. The average unemployment rate this year is expected to be 10.6%, and 8.4% next year. It forecasted that the unemployment rate, which peaked at 14% in the third quarter, will gradually decline. This differs from the unemployment trend announced by the US Department of Labor on the same day. The Department of Labor announced that the unemployment rate last month was 11.1%, down more than 2 percentage points from the previous month.

The Washington Post (WP) reported that economic experts analyzed, "The recently announced job figures reflect surveys conducted in mid-last month and therefore do not reflect the subsequent spread of COVID-19." The CBO also indicated that the average annual unemployment rate from 2025 to 2030 will be 4.4%, suggesting that it will be difficult to return to the 3.5% level before the COVID-19 outbreak in February within the next 10 years.

The greatest uncertainty in the economic outlook is the difficulty in gauging the spread of COVID-19. According to the WP, the number of new confirmed cases in the US reached 55,220 per day, setting a record for two consecutive days. Republican Governor Greg Abbott of Texas issued an executive order mandating mask-wearing in counties with more than 20 confirmed cases that day. Governor Abbott, who had previously refused mask-wearing while emphasizing the reopening of economic activities, changed his stance after nearly 8,000 cases were reported in a single day. Especially, with people expected to gather in many places on July 4th, US Independence Day, it is anticipated to be a turning point for the spread of COVID-19.

Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases (NIAID) and the country's top infectious disease expert, emphasized, "I think it is quite clear that we are not going in the right direction," and said, "The best way to safely open the country is to carefully use public health measures."