U.S. faces "profound" fiscal and economic challenges: report

Soaring budget deficit and sluggish economic growth are the two major and prolonged threats to the U.S. economy, according to a report released by the U.S. Congressional Budget Office (CBO) on Wednesday.

Budgetary Challenge

"The United States is facing profound budgetary and economic challenges," said the CBO in an update of U.S. budget and economic outlook report.

The report projected the federal government's budget deficit in fiscal year 2011 ending September will reach 1.28 trillion dollars, adding another year that the government red ink tops the 1- trillion-dollar mark.

At 8.5 percent of gross domestic product (GDP), the near 1.3 trillion budget deficit that the CBO projects for 2011 will be the third-largest shortfall in the past 65 years, exceeded only by the deficits of the preceding two years.

In 2009, the U.S. federal government's fiscal imbalance recorded an all time high level of 1.41 trillion dollars and fell slightly to 1.29 trillion dollars in 2010.

The office projected the country's deficit may drop markedly as a share of GDP over the next few years with the precondition of continuing recovery and increasing revenue.

"Under CBO's baseline projections, which generally reflect the assumption that current law will not change, deficits fall to 6.2 percent of GDP next year and 3.2 percent in 2013, and they average 1.2 percent of GDP from 2014 to 2021," noted the report.

In CBO's baseline, cumulative deficits total 3.5 trillion dollars between 2012 and 2021, and by the end of 2021, debt held by the public equals 61 percent of GDP.

That estimate of deficits over the next 10 years is considerably lower than the 6.7 trillion dollars that the agency projected in March.

However, many economists are skeptical about the future of debt reduction projection by the CBO.

Sluggish Growth

Besides government deficit prospect, the nonpartisan Congressional agency also projects slow growth of the world largest economy will continue.

"Although economic output began to expand again two years ago, the pace of the recovery has been slow, and the economy remains in a severe slump," the office said, adding recent turmoil in financial markets in the United States and overseas threatens to prolong the slump.

On the basis of economic data available through early July, when the agency initially completed its economic forecast, CBO projects that real GDP will increase by 2.3 percent this year and by 2.7 percent next year.

Under current law, federal tax and spending policies will impose substantial restraint on the economy in 2013, so CBO projects that economic growth will slow that year before picking up again, averaging 3.6 percent per year from 2013 through 2016.

According to the Commerce Department, the U.S. economy grew at 1.3 percent in the second quarter this year after a even more slower 0.4 percent growth pace in the first quarter.

Economists project that the overall economy will grow at about 1.5 percent in the second half of this year if not slower.

Stubborn High Unemployment

Heavy debt burden and slow growth cast little hope to significantly reduce the country's high unemployment rate, which currently stands at 9.1 percent.

The unemployment rate is projected to fall from 9.1 percent in the second quarter of 2011 to 8.9 percent in the fourth quarter of the year and to 8.5 percent in the fourth quarter of 2012--and then to remain above 8 percent until 2014.

The presidential election is in November 2012.

Job creation has become the top priority of the Obama administration, which is suffering at a low support from the public according to recent polls.

It is expected that President Obama will launch more proposals to spur the economy and create jobs after his 10-day-long summer vacation ending Saturday in Martha Vineyard, Massachusetts.

Republicans criticize that the Democratic government has been burdening the businesses with tighter regulation and higher taxes, which discourage them from hiring.

Many economists believe that it will take at least five years for the U.S. economy to recover from the financial crisis which hit in fall 2008. Unemployment rate, a lagging index of the economy, is projected to recover slower than the GDP growth.

[Source: Xinhua, Washington, 24Aug11]

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