CBO released a Update its budget and economic outlook, And the International Monetary Fund issued a mission Concluding remarks Conduct a fourth review of the United States. The following is the implied GDP level at the end of 2021.
figure 1: Reported GDP (black), Atlanta Fed Nowcasting (thin black line through the second quarter of 2021), administration (red square), survey of professional forecasters (blue triangle), FT-IGM (pink circle), CBO (orange*) forecast in June, IMF Article IV (green inverted triangle) and potential GDP estimated by CBO February 2021 (grey line). The NBER recession date is assumed to be the trough of the second quarter of 2020. The date displayed indicates when the forecast is “locked”.Source: Bureau of Economic Analysis, Atlanta Fed as of June 25, OMB 22 fiscal year budget, Philadelphia Federal Reserve SPF (May) and FT-IGM survey (June), CBO (February, July), International Monetary Fund (July), And the author’s calculations.
The IMF forecasts a quarter-on-quarter growth of 8%, while the CBO forecasts an increase of 7.4% (from 3.7% in February).
Use CBO’s February estimate of potential GDP The CBO forecast in July that the output gap at the end of the year will be around 2%; using the International Monetary Fund’s estimate of output, it is about 2.6%. The CBO or IMF’s estimate of the potential as of today is the same as the CBO’s estimate in February, without any reason. In fact, CBO notes:
As the pandemic eases and demand for consumer services surges, real (inflation-adjusted) GDP is expected to grow by 7.4% and exceed its potential (maximum sustainable) level by the end of 2021.
The statement seems to indicate that its current estimate of potential GDP is much higher than that indicated in its February report. This is consistent with the evaluation result, that is, the degree of scarring in the commercial sector is not as severe as previously feared.