The Congressional Budget Office said Monday that it sees the nation’s gross domestic product recovering from the coronavirus pandemic much faster than previously expected—even before any further stimulus from the federal government. It forecast that GDP will expand 4.6% this year—the fastest pace since 1999—after contracting by 3.5% in 2020.
If Biden’s package is approved in its entirety, federal government assistance to the economy during the pandemic will clock in at around 25% of annual GDP of almost $21.5 trillion. That compares with the roughly 10% hole the virus tore into the economy at the height of its impact.
“Economists are saying there is room for additional support,” said Peter Hooper, global head of economic research for Deutsche Bank. “The argument is how much do you want to overshoot.”
Biden administration officials tout the advantages of going big. They point to the ravages caused by Covid-19—about 10 million fewer Americans are employed since the pandemic began a year ago—and argue that now is not the time for the government to hold back.
“We have a real urgency to act and to act comprehensively,” Brian Deese, director of the White House’s National Economic Council, said in a Jan. 31 interview on NBC’s “Meet the Press” news show. “A piecemeal approach, where we try to tackle one element of this and wait and see on the rest, is not a recipe for success.”
Proponents of the package also maintain that it will help limit long-term damage to the economy by returning GDP and the jobs market back to their pre-pandemic heights more quickly.
In making the case for a smaller plan, former CBO Director Douglas Holtz-Eakin said that what’s holding back the economy is the virus, not a lack of money in consumers’ pockets. The personal saving rate stood at 13.7% in December, more than double its average since 2000.
“If we get another jump in the savings rate what are they going to do with it?” asked Holtz-Eakin, who’s now president of the American Action Forum and served as an adviser to the late Republican Senator John McCain. “Are they going to go out and buy GameStop?”
After skyrocketing on heavy retail purchases and short-covering by hedge funds, shares of video-game retailer GameStop Corp. plunged on Tuesday as the buying evaporated.
Most Wall Street economists are betting that Biden will get some, but not all, of the extra spending he’s seeking. But that will still be enough to substantially lift GDP in the coming quarters.
“The economy will be fueled by a one-two punch of virus containment and stimulus support,” Meyer said. She sees GDP rising at a 7.5% clip in the second quarter and 10% in the third on the back of another $1 trillion in stimulus.
—With assistance from Julia Fanzeres and Olivia Rockeman.
This article was provided by Bloomberg News.