Fiscal outlook continues to deteriorate

The latest Federal budget projections from the non-partisan Congressional Budget Office underline the terrible state of the public finances. This year's deficit is now expected to reach $1,480bn, or 9.8% of GDP. Although the deficit should narrow gradually as the economy improves, we doubt it will fall below 5% of GDP in the foreseeable future. In the longer-term, the deficit is projected to widen again as the retirement of the Baby Boomers swells social security and healthcare spending.