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1st LD Writethru: U.S. economy expected to grow 2.7 pct in 2016 with deficit widening: CBO

Xinhua, January 20, 2016 Adjust font size:

The U.S. economy is expected to grow at a solid pace of 2.7 percent this year, but the deficit will increase for the first time since 2009 largely because of permanent tax breaks that Congress passed last year, the Congressional Budget Office(CBO) said on Tuesday.

The non-partisan CBO estimated that the fiscal 2016 deficit will rise to 544 billion U.S. dollars, or 2.9 percent of the GDP, from the 2.5 percent in fiscal year 2015. It will be the first time that the deficit has risen in relation to the size of the economy since peaking at 9.8 percent in 2009, said the CBO.

The 2016 deficit is 130 billion dollars higher than the CBO's projection in August 2015. The agency attributed the increase largely to the legislation that retroactively extended a number of provisions that reduce corporate and individual income taxes.

According to the CBO's projection, the U.S. deficit would grow over the next 10 years, and by 2026 it would reach 1.366 trillion dollars, or 4.9 percent of the GDP, considerably higher than its average over the past 50 years.

The CBO estimated that the economy will expand at a solid pace of 2.7 percent this year and 2.5 percent in 2017, with support from stable consumer spending.

It said that the increases in demand for goods and services are expected to reduce the quantity of underused labor and capital in the economy, thereby encouraging greater participation in the labor force by reducing the unemployment rate and push up compensation.

It also expected the unemployment rate will fall further to 4.5 percent in the fourth quarter of this year from 5 percent in the same period of last year. Endit