Despite the impending $85 billion in spending cuts and tax increases that will slow the economy down in 2013, analysts anticipate that economic growth will begin picking up steam in 2014.
The Congressional Budget Office recently released a report that had a few key findings. For starters, the deficit will drop down to $845 billion, or 5.3 percent of the economy. This will mark the first time in five years that the deficit reached below $1 trillion. The CBO anticipates that the trend will continue for an additional two years, and in 2015 the deficit will be 2.5 percent of the economy.
The CBO attributes the potential contraction to “an aging population, rising health care costs, an expansion of federal subsidies for health insurance and growing interest payments on the federal debt.”
While a falling deficit is positive news, it comes with a $7 trillion price-tag, according to CBO estimates. The agency expects that by 2023 the debt held by the public will rise to 77 percent of the GDP, up from the 76 percent that is held today.
What will help keep the debt load down is more legislative action from the government and for the economy to improve. The CBO estimates that the U.S. economy will grow at a slow 1.4 percent in 2013. Growth could have increased by 1.5 percentage points, but the fiscal tightening has restricted that growth. Lawmakers argue that this is for the greater good, but those working or looking for jobs beg to differ, and for good reason. The CBO does not foresee unemployment falling below 7.5 percent until 2015, but by 2023 expects that unemployment will eventually reach 5.3 percent in 10 years.
For more on the positive economic outlook, read the CBO report.