Market Watch: Coronavirus Economic Shock to be Felt for a Long Time, CBO Says

Article by Jonathan Nicholson in The Wall Street Journal Market Watch

The economic impact of the coronavirus will not only be sharp, it will be long-lasting, the nonpartisan Congressional Budget Office said Monday.

In a report issued in response to a request from Senate Democratic Leader Chuck Schumer, the CBO said it expected real gross domestic product to be about 3% smaller over the 2020 to 2030 period than it had projected in January, before the pandemic hit the U.S.

In inflation-adjusted dollar terms, that drop would be equivalent to $7.9 trillion.

The figures are based on projections released May 19 and CBO repeated they reflect a “significant markdown” in growth estimates.

“Business closures and social distancing measures are expected to curtail consumer spending, while the recent drop in energy prices is projected to severely reduce U.S. investment in the energy sector.

The difference between the January estimate and the updated estimate of real second quarter GDP was put at 13.3% but dropped to 7.6% at the end of 2020 and “roughly disappears” by 2030.

On a nominal level, the drop over the 11-year 2020-2030 period would be even larger, at $15.7 trillion or 5.3%. But much of the difference between the nominal decline and the real one is due to lower-than-previously projected prices over the forecast window.

“By 2030, lower prices account for roughly all of the revision to nominal GDP,” the CBO said.

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