U.S. Budget Office offers darker economic and deficit outlook

By Jeremy Pelofsky

WASHINGTON (Reuters) - U.S. congressional budget experts on Friday offered a darker economic and budget outlook, which could complicate President Barack Obama's efforts to convince lawmakers to pass his $3.55 trillion budget plan for 2010.

The Congressional Budget Office forecast a record $1.8 trillion deficit for the fiscal year that ends September 30 under Obama's budget proposal -- or 13.1 percent of gross domestic product.

The budget experts projected the deficit would then ebb some to $1.4 trillion for 2010 -- or 9.6 percent of GDP.

Since taking office in January, the Obama administration has been shoveling 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 $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."

CBO also issued gloomier forecasts for the U.S. economy, projecting that it will contract 3 percent in 2009 before growing 2.9 percent next year and expanding 4 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 healthcare and curb greenhouse gas emissions.

CBO also revised its forecast about accumulating deficits over the next 10 years, saying it would total $9.3 trillion from 2010 to 2019, which drew immediate fire from Republicans who have criticized Obama's budget for its massive new spending and tax increases on the wealthy.

"This debt buildup is due to massive spending that we cannot afford, and deficits that go unaddressed," said Senator Judd Gregg, the senior Republican on the Senate Budget Committee.

In January, the CBO forecast almost $1.2 trillion in red ink for fiscal 2009 and $703 billion for fiscal 2010, but that came before the economic stimulus package Congress passed in February to kick-start the ailing economy.

Obama's budget projected a $1.75 trillion deficit for fiscal 2009 and $1.17 trillion for 2010. The House and Senate Budget Committees were awaiting the latest CBO estimates before they begin to craft their budget plans next week.

Obama's budget outline to Congress last month included a forecast of almost $7 trillion in deficits through 2019 -- or $2.3 trillion less than CBO's projection.

(Additional reporting by Richard Cowan; Editing by Jan Paschal)