Budget Office projects slow economic growth

The $1.3 trillion budget deficit that the Congressional Budget Office projects for 2011 will be the third largest shortfall in the past 65 years (exceeded only by the deficits of the preceding two years). This year's deficit stems in part from the long shadow cast on the U.S. economy by the financial crisis and the recent recession. 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. Recent turmoil in financial markets in the United States and overseas threatens to prolong the slump.

CBO expects that the recovery will continue but that real (inflation-adjusted) gross domestic product will stay well below the economy's potential for several years. CBO projects that real GDP will increase by 2.3% this year and by 2.7% 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% per year from 2013 through 2016.

With modest economic growth anticipated for the next few years, CBO expects employment to expand slowly. The unemployment rate is projected to fall from 9.1% in the 2nd quarter of 2011 to 8.9% in the 4th quarter of the year and to 8.5% in the 4th quarter of 2012 and then to remain above 8% until 2014. Although inflation increased in the first half of 2011, spurred largely by a sharp rise in oil prices, CBO projects that it will diminish in the second half of the year and then stay below 2% over the next several years.