WASHINGTON — The United States will not fall into a new recession despite sharp cuts to government spending, but unemployment could remain above eight percent through 2013, the White House said Thursday.
While growth will stay sluggish this year, in the 1.7-2.2 percent range, the economy is not expected to contract, according to a mid-year fiscal budget review by the Office of Management and Budget.
Even though growth remains weak two years after the last contraction ended, “We are not forecasting a double-dip recession,” said Katharine Abraham, a member of the White House Council of Economic Advisers.
Owing to steep spending cuts and a better-than-expected rise in receipts, the country’s huge fiscal deficit — which earned it a first-ever downgrade from ratings agency Standard & Poor’s in August — will be only 8.8 percent of gross domestic product this year, compared to 10.9 percent anticipated in January.
The deficit will fall to 6.1 percent of GDP by next year and just 2.7 percent in 2014, the OMB forecast.
The government gave cautious forecasts of growth, noting that data in recent months had showed a much slower economy than expected earlier this year.
The economy had been set back this year by the rise in oil prices, manufacturing disruptions due to the Japanese earthquake, Europe’s debt problems and the long political battle over raising the country’s borrowing ceiling.
Due to those problems, “Economic growth and job creation, while positive, have not been strong enough to bring down the unemployment rate to an acceptable level,” the OMB said.
The economy will expand in a 2.6-3.3 percent range next year, and accelerate to near-4.0 percent growth by 2014.
But the government expects the politically charged issue of high unemployment to persist.
Currently 9.1 percent, the jobless rate could be still as high as 9.0 percent late next year, or at best 8.2 percent.
That is likely to remain a key issue as President Barack Obama faces a stiff Republican reelection challenge in November 2012 based on his record on the struggling US economy.
At best unemployment will be still 6.9 percent in 2014, at worst just below eight percent, according to the forecast.
The report came as Obama prepares a new push for job creation, to be marked in a speech on September 8.
The OMB report stressed that deficit-cutting measures instituted on August 2 should not be allowed to exacerbate the unemployment situation.
“Congress must appreciate that the economy is still wrestling with the after-effects of a very severe recession.”
Even so, the White House was optimistic about the coming years.
“Despite recent setbacks, the administration expects the economy to grow at increasing rates in the months and years to come.
“One reason for this is that the US economy is operating well below its capacity, with higher levels of unemployment and more unused resources than at any time in over a quarter century. The potential for a sharp recovery is present in this low level of resource utilization.”