August 25, 2009 / 1:35 PM / 9 years ago

White House budget sees unemployment peak at 10 pct

WASHINGTON, Aug 25 (Reuters) - The White House on Tuesday said U.S. unemployment would be higher and the budget deficit larger than earlier thought, which could slow President Barack Obama’s drive to push through a major healthcare overhaul.

The White House deficit projections now lie closer to those of the independent Congressional Budget Office, but these latter will also be updated later on Tuesday and could paint an even grimmer picture.

The administration’s midsession budget review also saw a return to positive U.S. growth by end-2009, as the worst recession since the Great Depression ends, and lifted the pace of economic activity that it expects between 2011 and 2016.

White House budget director Peter Orszag confirmed the budget deficit was expected to be a smaller than initially thought $1.58 trillion in fiscal 2009, due mainly to $250 billion earmarked for bank bailouts being dropped.

In addition, he said the deficit between 2010 and 2019 would total about $9 trillion, or $2 trillion more than forecast when the White House updated its initial budget projections in May. These numbers were leaked last week.

As a percentage of GDP, the budget deficit will touch 11.2 percent in fiscal 2009, edge down to 10.4 percent in 2010 and then fall fairly smartly and hover around 4 percent out to 2019.

Orszag did, however, say that the bulk of this burden would be made up of interest payments.

He noted this also reflected an assumption that 10-year government bond yields would rise to an average of 5.2 percent in 2012 from 3.6 percent this year as the unusually strong demand for Treasuries as a safe haven abated.

The White House firmly pinned the blame for the deficit deterioration on the recession Obama inherited from Republican President George W Bush, for driving up government spending on things like unemployment insurance and food stamps.

The midsession budget review forecast the economy would shrink by 2.8 percent year-over-year in 2009, but grow 2.0 percent in 2010 and by 3.8 percent in 2011.

As a result of the larger deficit, the ratio of national debt to gross domestic product would rise from 48 percent in 2009 to 57 percent in 2010 and almost 69 percent by 2019. (Reporting by Alister Bull; Editing by Simon Denyer)

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