US economy will not recover until 2018 – congressional study

31 January 2012 20:11  [Source: ICIS news]

WASHINGTON (ICIS)--The US economy will remain sluggish over the next two years, unemployment will be above 7% until 2015 and the nation will not return to normal gross domestic product output for another six years or until 2018, the Congressional Budget Office said on Tuesday.

In a sobering outlook for the US economy, the Congressional Budget Office (CBO) said that it does not expect the nation’s gross domestic product (GDP) to exceed 2% this year, and that it could well fall to a mediocre 1.1% GDP expansion for 2013.

The CBO forecast of only 2% US GDP growth this year is in contrast with the recent outlook by US Treasury Secretary Timothy Geithner, who said that US growth in 2012 could reach 3%.

The CBO, which provides economic data and analysis to congressional budget committees and Congress as a whole, said that it does not expect US GDP growth to return to normal annual trend growth of 3-3.5% until 2018.

“The pace of the economic recovery has been slow since the recession ended in June 2009, and the CBO expects that, under current laws governing taxes and spending, the economy will continue to grow at a sluggish pace over the next two years,” the CBO said in its annual budget and economic outlook to Congress.

“Although CBO projects that growth will pick up after 2013, the agency expects that the economy’s output will remain below its potential until 2018 and that the unemployment rate will remain above 7% until 2015,” the outlook said.

“In CBO’s forecast, the unemployment rate remains above 8% both this year and next,” the analysis said, adding that the jobless rate will gradually decline “but it will still be around 7% at the end of calendar year 2015”.

The nation’s unemployment rate can be expected to edge downward to 5.5% by the end of 2017 and inch closer to 5% by the end of 2022, the report said.  In a normal economy, the US unemployment rate would be in the 4-5% range.

In its outlook for US government budget trends, the CBO said that the federal government will run a deficit of nearly $1,100bn (€836bn) this year – the fourth year in a row in which federal spending has exceeded revenues by more than a trillion dollars.

The CBO noted that its projections are based on current law, policies and economic conditions, but that changes could occur.

“Many developments could cause economic outcomes to differ substantially, in one direction or another,” the analysis noted.

“For example, the economy could grow considerably faster than the agency has forecast,” CBO said.

However, said the report, “a significant worsening of the banking and fiscal problems in Europe could lead to further turmoil in international financial markets that could spill over to those in the US and greatly weaken the economy here”.

($1 = €0.76)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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