The Obama administration’s budget projects a deficit of 4.4% of GDP in the next fiscal year (which ends 30 September 2014) and 3.2% in fiscal 2015, down from 6.0% in the current year. Clearly, such a trend would be positive if this budget were to be adopted. But our evaluation of the government’s credit profile rests on the longer-term debt trajectory, which is not as certain in the White House budget. The economic assumptions used in projecting spending aggregates include real GDP growth averaging 3.4% annually over the five years beginning in 2014.
We think this rate of growth is optimistic, as do other forecasters such as the IMF and the consensus of private US forecasters, and if the US economy misses this target, the actual debt trajectory would be less favorable.
For details, see After Obama Administration’s Budget Proposal, US Credit Trend Is Still Unclear $$