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Higher debt is a necessary price to pay

Senior Economist
Justin Weidner
Brett Ryan
Senior US Economist

The US economy is experiencing unprecedented disruptions that have led to a sudden stop in activity. The result will be the most dramatic decline in GDP and sharpest rise in unemployment in the post-World War II period.

These eye-popping numbers are anticipated even though fiscal and monetary authorities have responded in a historically timely and aggressive fashion. On the fiscal side, Washington has provided roughly $2.5tn of support for households and businesses to date with more likely on the way. While these actions are necessary to prevent a global pandemic from mutating into an economic depression, the outcomes of these policy measures may influence decisions for years, if not decades, to come.
The fiscal cost of these policies is likely to be immense. Under our baseline scenario, the fiscal deficit will balloon to more than $4tn in fiscal year 2020, about 21% as a share of GDP. Debt-to-GDP is likely to rise to 100% this year, reaching a level not seen since the mid-1940s. By the end of the decade, debt-to-GDP is likely to near 125% under our base case. A more protracted pandemic would lead to even more adverse fiscal outcomes, with debt-to-GDP approaching 150% by 2030.
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