CBO Expects Rapid Return to Pre-Pandemic Economic Growth
February 2, 2021
The government expects U.S. economic growth to recover “rapidly” following the vaccine rollout. The nonpartisan Congressional Budget Office (CBO) expects GDP to return to its pre-pandemic size by the middle of this year and for the labor force to recover to its previous size in 2022.
The CBO said its projections do not assume any new stimulus, including the $1.9 trillion plan currently being debated by Congress.
The outlook is a far rosier projection than the one the CBO issued last summer, when they expected the pandemic to diminish economic activity by $7.9 trillion over the next decade. The CBO attributes the upgraded expectations to the initial downturn not being as severe as expected, while the first stage of the recovery came sooner and stronger than expected.
The CBO anticipates GDP growth to average 2.6% over the next five years. Beyond that, there is concern that economic growth will moderate as an uptick in prices leads to lower consumer spending. Between 2026 and 2031, the CBO anticipates 1.6% annual GDP growth and inflation running above the Fed’s 2% target.