The U.S. economy is set in 2021 to accelerate its recovery from the coronavirus-induced contraction of 2020, even without further economic stimulus from Washington, the nonpartisan Congressional Budget Office said.
“CBO currently projects a stronger economy than it did in July 2020, in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected,” the CBO said in an abbreviated version of its annual outlook released Monday.
The CBO projected economic growth of 4.6% in 2021, compared with a 3.5% contraction in 2020. That would be the strongest annual growth rate since 1999, just before the late 1990s tech boom ended. The drop in 2020 was the biggest annual decline since 1946.
The 2021 bounceback would return the economy to its pre-pandemic size in the middle of the year, CBO said.
Unemployment, though, would recover on a slower pace. Unemployment is projected to average 5.7% for 2021 but the number of people employed would not get to its pre-coronavirus level until 2024 in the forecasts.
The figures could be viewed as undermining Democrats’ case for another big relief and stimulus package. President Joe Biden has proposed another $1.9 trillion in aid, including another set of payments for households and aid to state and local governments.
Congressional Republicans in general have said lawmakers should wait to see how the economy responds to money already approved by Congress that has yet to be spent before agreeing to spend more. A group of 10 Republicans, though, sent has Biden a counterproposal totaling $618 billion, and he has invited them to the White House for discussion.
The CBO said past pandemic relief packages helped the economy, noting that the December package with about $900 billion in aid “played a part in improving the economic outlook.”
Inflation is expected to remain tame, running at 1.9% for the year versus 1.3% in 2020, while the interest rate on th benchmark 10-year U.S. Treasury note would average 1.1% in 2021.
The CBO warned its projections were subject to “an unusually high degree of uncertainty” because of the pandemic, the impact of previous economic packages and the response by capital markets to the increased U.S. debt load. The forecast assumes social distancing measures diminish in the middle of the year and was based on data available by Jan. 12.
The outlook did not include budget projections, which are usually included in the annual report. Those will be out in February, along with more detailed economic projections.