In new budget and economic projections released Monday, the Congressional Budget Office said annual deficits are expected to rise above $1 trillion in 2022, two years later than previous estimates, thanks in large part to lower interest rates and lower projected spending on disaster relief.
Despite the delay, however, the overall fiscal story is much the same as in previous outlooks, with deficits and debt rising for years to come. Here’s an overview of the CBO outlook:
* The budget deficit is expected to total $897 billion in 2019, $118 billion higher than in 2018. It will rise to about $1.2 trillion by 2025 and $1.4 trillion by 2028. Deficits will average 4.4 percent of GDP over the next 10 years, well above the average of 2.9 percent over the past 50 years, CBO said.
* The national debt will continue to grow, with federal debt held by the public reaching 93 percent of GDP in 2029, which the CBO says is the highest level since just after World War II. Assuming we stick to the current trajectory, the debt would equal about 150 percent of GDP by 2049.
* Revenues are projected to rise, from 16.5 percent of GDP in 2019 to 18.3 percent a decade later, although the projected increase assumes the individual tax cuts in the 2017 tax bill expire as scheduled.
* Spending is projected to rise from 20.8 percent of GDP this year to 23.0 percent in 2029. “The aging of the population and the rising cost of health care contribute significantly to the growth in spending for major benefit programs, such as Social Security and Medicare,” CBO said. “And rising debt and higher interest rates drive up the federal government’s net interest costs.”
* GDP growth is projected to hit 2.3 percent on an annual basis in 2019, before falling into an average of 1.7 percent through 2023, and 1.8 percent in the five years following. CBO cited slow growth in the labor force as a primary driver of relatively weak economic growth.
The projections do not include effects generated by the partial government shutdown, which likely reduced economic growth in 2019. And, as noted above, the outlook assumes that Congress will allow individual tax cuts to expire at the end of 2025. Under an “alternative fiscal scenario” in which those tax cuts do not expire – a scenario many experts say is likely – the debt and deficit numbers are worse, with debt rising to 105 percent of GDP in 2029.
Gearing Up to Issue More Debt: Also Monday, Bloomberg’s Liz McCormick, Saleha Mohsin and Alexandre Tanzi reported that bond traders expect the U.S. Treasury to issue more than $1 trillion in long-term debt for the second year in a row in 2019. Treasury’s total net new issuance rose to $1.34 trillion in 2018, more than twice the $550 billion issued in 2017. And Deutsche Bank’s Steven Zeng projects net debt issuance in the range of $1.25 trillion to $1.4 trillion per year over the next four years.
“We’ve seen deficits continue to blow out,” Brian Edmonds, head of interest-rates trading at Cantor Fitzgerald, told Bloomberg. “We are going to see more and more supply.”