U.S. federal budget deficit forecast to hit $3.3tn this year

U.S. federal budget deficit forecast to hit $3.3tn this year”

The budget deficit this year is expected to triple to US$3.3 trillion (S$4.5 trillion), or 16 per cent of GDP - the largest since 1945.

Federal deficits were projected to fall to $1.8tn in the fiscal year beginning October 1, the CBO said, and will total $13tn over 10 years.

The US government is projected to run its largest-ever budget deficit this fiscal year.

CBO projected that the national debt will amount to 98% of GDP this year, up from 79% of GDP at the end of 2019 and 35% of GDP in 2007.

"This report shows that our unsustainable fiscal challenges have rapidly accelerated, as our national debt will now exceed the size of our entire economy next year", said Peter G Peterson Foundation Chief Executive Michael Peterson.

The nonpartisan CBO said its updated forecasts project that by 2030, the debt would equal 109 per cent of GDP. The deficit projection was attributed to the coronavirus disruption of the economy and the cost of legislation enacted by Congress in response to the pandemic.

As the coronavirus pandemic hit the USA economy earlier this year, tax revenues fell as business activity slowed down. But this would be the first time in more than 70 years for it to do so for the federal government's full fiscal year.

That shutdown led lawmakers and President Donald Trump to pump money into business subsidies, larger unemployment benefits, Dollars 1,200 direct payments and other stimulus steps that have helped the economy in the short term.

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Some analysts fear the enormous debt will hurt chances of an economic recovery.

The mounting US debt load is at the center of a debate in Congress over how much additional relief the government can afford to provide to households and businesses hit by the pandemic.

"At a certain point, Washington's insatiable borrowing needs will crowd out other investments and harm growth", said Brian Riedl, a senior fellow at the conservative Manhatten Institute. The coronavirus has infected more than 6 million people in the United States and claimed more than 180,000 lives here.

Democrats and Republicans in Washington have stalled talks on a new stimulus package, with some GOP members concerned about escalating spending.

Democrats have pushed for a 3 trillion dollar relief package, while the White House and Senate Republicans have proposed a 1 trillion dollar package.

Although the debt and deficit are soaring, some analysts think continued spending to fight the virus is necessary - up to a point.

That increase is mostly due to the economy being ravaged by the COVID-19 pandemic and the federal rescue packages passed by the government in response. "Once the current crisis ends, policymakers must turn their attention to long-term deficit reduction to put the country on solid fiscal ground".

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