The Congressional Budget Office painted a gloomy economic picture on Wednesday, saying the U.S. faces "profound budgetary and economic challenges."
The non-partisan Congressional group expects the economy to remain "well below" its potential for the next several years as it recovers from one of the worst downturns in decades. The economy is expected to expand by an anemic 2.3% this year, and 2.7% the next year, and then proceed an an average pace of 3.6% between 2013 and 2016. In fact, current government spending and tax policies, coupled with the recent market turmoil, are projected to pose a substantial drag to the economy.
The slow pace of economic growth will take its toll on the embattled labor market, the CBO said. The unemployment rate is projected to fall from 9.1% to 8.9% by the end of 2011, and remain stuck above 8% until 2014. This is a sharp contrast from the average 5.8% unemployment rate over the past 50 years, according to data compiled from the Labor Department.
The United States' fiscal outlook is dreary as well. The Federal Budget deficit is expected to hit at $1.3 trillion for 2011 -- 8.5% of total economic output. The shortfall is the third-largest in 65 years, topped only by the two preceding years, the CBO said.
The cumulative deficits between 2012 and 2021 is forecast to hit $3.5 trillion, nearly half of the $6.7 trillion the agency projected in March. The Budget Control Act that was signed into law early this month after months of heated negotiations, contributed to roughly two thirds of the reduction. Still, an aging population and rising healthcare costs may cause the federal debt to "skyrocket" after the CBO's ten-year projection period.
"To prevent debt from becoming unsupportable, policymakers will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches," the CBO said in a release.