The economy will grow in 2021 at its fastest rate in 17 years as vaccines are administered across the country and life returns to normal, the Congressional Budget Office projected Monday.
The CBO expects that the U.S. gross domestic product will continue to expand “rapidly over the coming year, reaching its previous peak in mid-2021 and surpassing its potential level in early 2025,” with an anticipated annual growth rate of 2.6% over the next five years.
Annual growth is expected to hit 3.7% in 2021, which would be the strongest number since 2004.
“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 report reads. “CBO made those changes to its economic projections even though it expects social distancing to be more pronounced and to last longer than projected in July.”
The report attributed the anticipated rapid recovery in part to the various relief packages passed by Congress throughout the year but noted that those benefits were not without costs — the CBO expects that the most recent round of relief, passed in December 2020, would contribute a roughly 1.5% boost to GDP in the next two years but would add $774 billion to the federal deficit in 2021 and an additional $98 billion in 2022.
While GDP is expected to bounce back far quicker than expected, the CBO expects that the U.S. workforce will not return to pre-pandemic levels until as late as 2024 but will continue to decline gradually through 2026.
Industries such as hospitality and travel continue to bear the brunt of the coronavirus pandemic, and their recovery largely remains dependent on expanding the country’s vaccination administration program, according to the CBO. Another factor influencing depressed labor force participation includes how rapidly parents are able to get their children back into in-person classrooms and child care facilities.
The CBO’s projections do not take into consideration any anticipated major spending bills, including President Biden’s $1.9 trillion coronavirus relief package. But even without additional significant measures, the CBO predicts that “the economy continues to strengthen during the next five years.”
The CBO cautioned that its projections are “subject to an unusually high degree of uncertainty, and that uncertainty stems from many sources, including the course of the pandemic, the effectiveness of monetary and fiscal policies, and the response of global financial markets to substantial increases in public deficits and debt.”
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