UPDATE 3-US Congress budget office sees $1.8 trln deficit
* Sees FY09 deficit at highest ratio to GDP since 1940s
* GDP to shrink 3 pct in 2009, grow 2.9 pct in 2010
* White House says priorities unchanged despite forecasts
* Republicans argue projections demand less spending (Adds White House, congressional reaction)
WASHINGTON, March 20 (Reuters) - U.S. congressional budget experts on Friday offered a darker economic and budget outlook, projecting a breathtaking $1.8 trillion deficit this year, which could complicate President Barack Obama's efforts to win passage of his $3.55 trillion budget for 2010.
The Congressional Budget Office's projected deficit for the 2009 fiscal year ending on Sept. 30 would amount to 13.1 percent of expected gross domestic product -- a level not seen since World War Two. In January, the budget office had forecast a $1.2 trillion deficit for fiscal 2009.
The CBO also forecast a deeper economic downturn this year, projecting a contraction of 3 percent in 2009 before the economy begins to recover in next year.
The budget experts at CBO forecast the deficit would ease to almost $1.4 trillion in fiscal 2010 -- or 9.6 percent of forecast GDP.
Since Obama took office in January, his administration has been shoveling out billions of dollars in a bid to reverse a steep downward spiral in the U.S. economy and prop up the struggling financial system.
"Although the economy is likely to continue to deteriorate for some time," the CBO said, the government's $787 billion economic stimulus package "and very aggressive actions by the Federal Reserve and the Treasury are projected to help end the recession in the fall of 2009."
The CBO projected that following its forecast steep economic contraction this year, the economy will grow 2.9 percent next year and 4 percent in 2011.
In January, CBO had forecast the economy to shrink 2.2 percent this year before growing 1.5 percent in 2010 and 4.2 percent in 2011.
The massive deficit forecasts come after Obama submitted in February his $3.55 trillion budget plan for fiscal 2010, which includes huge new programs to address health care and curb greenhouse gas emissions.
The White House predicted Obama's budget priorities would not be affected by the forecasts of bigger deficits.
"Even with those numbers, the four key principles of the Obama budget will be met," said White House budget director Peter Orszag, referring to investments in health care, education and clean energy as well as cutting the deficit in half by the end of Obama's first term. Continued...
