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White House sees sluggish GDP
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January 23, 2002: 4:08 p.m. ET
President's budget office expecting weak growth in 2002, deficits to 2004.
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NEW YORK (CNN/Money) - President Bush's upcoming budget plan will project anemic economic growth of less than 1 percent this year and budget deficits until the year 2005, Office of Management and Budget Director Mitch Daniels said Wednesday.
Daniels said the Bush budget, to be released Feb. 4, will assume weak economic growth of just 0.7 percent in 2002 and stronger growth of 3.8 percent in 2003.
The estimate for 2002 is well below that of most Wall Street economists. Merrill Lynch, for example, recently forecast gross domestic product (GDP), the broadest measure of economic strength, to grow 1.4 percent in 2002.
And Dallas Federal Reserve Bank President Robert McTeer told reporters Wednesday that he thought a forecast of 2.2 percent GDP growth in 2002 was "realistic" and could even "be a little bit too conservative," according to a Reuters report.
White House sources admitted they were being exceedingly cautious in their estimate for 2002 growth. Their weak outlook for GDP could be part of the administration's effort to encourage Congress to pass an economic stimulus package.
The Republican-controlled House of Representatives passed a package in 2001 that focused on giving tax breaks to corporations. The Democrat-controlled Senate didn't OK that plan, and debate continues on Capitol Hill about the future of economic stimulus.
Some observers wonder if such a package is still necessary. The U.S. economy has been in recession since March 2001, according to the National Bureau of Economic Research. It could meet the common definition of a recession, two straight quarters of shrinking GDP, if GDP shrinks in the fourth quarter, as many economists expect.
But recent data have reinforced the idea that the economy will rebound some time in 2002 and return to relatively strong growth by the end of the year. Even President Bush's economists expect growth of 3.5 percent by the fourth quarter of 2002.
Helping fuel a recovery, the Federal Reserve cut its target for short-term interest rates 11 times in 2001. Many economists expect it to cut rates again at its next policy meeting, scheduled for Jan. 29-30.
Click here for CNN/Money's economic calendar
The budget projects deficits of $102 billion in 2002, $80 billion in 2003 and $14 billion in 2004. It expects the next surplus, estimated at $61 billion, will come in 2005.
Daniels also said the reappearance of deficits will force the government to halt debt reduction payments this year. U.S. Treasury bond prices, already falling on higher stock prices, extended their losses on the news.
The White House budget projections assume Congress passes an economic stimulus bill, a $48 billion boost in defense spending and a doubling of spending on homeland security to nearly $30 billion in this year alone.
Daniels also said the administration's 10-year budget projections show a cumulative surplus of $1 trillion, assuming Congress re-extends the $1.35 trillion Bush tax cut passed last year and due to expire in 2011. 
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