WASHINGTON – The U.S. economy is expected to grow faster in 2021 than officials predicted last July, but it will take several years for output to reach its full potential and for employment to return to its pre-recession peak, according to a new economic forecast released Monday.
The Congressional Budget Office said it expects gross domestic product, the broadest measure of economic performance, to return to pre-recession levels by mid-year, thanks in part to a Congress-approved increase in aid spending in 2020, including for household and business assistance.
GDP is expected to grow at an annual rate of 3.7% in the fourth quarter of 2021 and 2.4% in 2022. According to the CBO, growth will average 2.6% per year through 2025. According to the agency, the roughly $900 billion rescue package approved in December would increase GDP by about 1.5% this year and next.
The latest projections will be closely watched by lawmakers as they assess the additional support the government will need to provide to the U.S. economy to recover from the coronavirus pandemic and its economic impact.
On Monday, Senate Republicans released new details about their proposed $618 billion aid package for the coronavirus.
The GOP proposal is about a third less than Biden’s $1.9 trillion plan.
The economy is expected to be stronger this year than the CBO predicted in July, largely because the recession has not been as severe as expected and because the first phase of recovery came earlier and stronger than expected, the agency said.
However, the CBO predicts that economic activity will remain below potential – or maximum sustainable performance – through 2025, suggesting that the rebound in activity expected this year may follow a long and slow recovery.
The CBR estimates that the unemployment rate will rise from 6.8% at the end of 2020 to 5.3% at the end of this year. However, the number of active persons will not return to pre-pandemic levels until 2024, the agency said.
It also expects moderately higher inflation and interest rates in the coming years than expected in July.
In late January, President Biden signed two executive orders to increase aid to combat the pandemic, including more food aid and better protection for workers. Photo: Ken Cedeno/Pool/Shutterstock (originally published January 22, 2021).
Critics of Biden’s bailout package argued that it would provide more support than the economy needs in the coming quarters.
According to a new analysis by economists at the Brookings Institution, the president’s plan is expected to result in the gross domestic product returning to pre-pandemic levels by the end of the year, as economists predict, and the unemployment rate temporarily dropping from 6.7 percent in December 2020 to 3.2 percent by the end of 2021.
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GDP will beat expectations by 1% in the fourth quarter of 2021, likely putting some upward pressure on inflation, which the Fed would welcome, Brookings officials said.
it is written. In 2022, production will decline slightly, although the decline could be larger than expected.
If the plan is implemented, they said, cumulative GDP over the next decade will be about the same as before the pandemic. Without a new aid programme, GDP would have remained below pre-pandemic levels for several years.
In the near term, the economy will face significant headwinds without additional federal funding to halt the pandemic’s resurgence and distribute vaccines, wrote Edelberg, a former chief economist at the CBO, and Scheiner, a former Fed economist.
Without additional support, production may return to pre-crisis levels this year, but economists say the lost opportunity will not be made up in 2020. The total deficit would be about $857 billion by 2024, according to the CBO.
If we really want to recover from a pandemic, it’s not just a matter of getting to the point where we were in February  and declaring victory, he said.
Economist at Evercore ISI.
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Email Kate Davidson at [email protected].
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