US deficit not as bad as first thought: CBO

THE US budget deficit for this fiscal year has been revised lower to $1.3 trillion (£806bn) by analysts at the Congressional Budget Office [CBO] it was announced yesterday. This compares with an earlier estimate of $1.4 trillion posted in 2009.

Although this is an improvement, 2010’s US budget deficit still represents 9.2 per cent of GDP. This will be the second largest annual deficit recorded since World War Two. Last year’s deficit was the largest for more than 64 years.

These estimates come less than a week before President Barack Obama presents his budget for the 2010-11 fiscal year to Congress and on the eve of his annual State of the Union address in which he is expected to announce public spending cuts.

The CBO predicts the budget deficit will fall sharply to $980 bn in 2011, or 6.5 per cent of GDP. It is expected to continue to narrow, and reach 3.2 per cent of GDP by 2020.

Its caveat to these figures is an increase in government spending from current levels. This could include healthcare reform currently making its way through the US Senate. In that scenario the 2010 deficit could exceed last year’s shortfall, according to the CBO.