Arab Today, arab today qnb group budget deal does not change longterm us fiscal outlook
Last Updated : GMT 12:34:44
Arab Today, arab today
Arab Today, arab today

QNB group: Budget deal does not change long-term US fiscal outlook

Arab Today, arab today

Arab Today, arab today QNB group: Budget deal does not change long-term US fiscal outlook

Doha - QNA

The main benefit of this budget deal is that it avoids another government shutdown over the next two years. The deal will increase discretionary spending in the short-term, easing the pain of sequestration. However, the budget deal keeps government spending lower than envisaged before the sequestration, which will lead to an additional drag on US economic growth of about 0.5% of GDP in 2014. QNB Group therefore forecasts the US economy to grow by only 1.5% next year. Critically, the budget deal does not eliminate the potential for a renewed fiscal crisis. The deal does not include an increase in the US debt ceiling, which will again become binding on February 7, 2014. Unless this ceiling is raised, the US government will not be able to fund its operations, which would raise again the risk of an unprecedented default on US government debt. Over the medium term, the problem of containing health and social security entitlements has not been addressed by this budget deal. According to the Congressional Budget Office, these entitlements are expected to rise significantly to about 15.0% of GDP by 2023 as a large portion of the US population, the so-called baby boomers, retire. This represents a significant challenge to keep the fiscal deficit under control while having sufficient room to address the growing infrastructure needs of the US economy. The current budget deal leaves it to a subsequent Congress to address this challenge. Overall, the budget deal does not change the US long-term fiscal outlook, according to QNB Group. While it avoids another government shutdown, it does not address the challenge of reducing entitlements over the medium term. Moreover, it does not address the risk of a possible government default once the US debt ceiling becomes binding again early next year. As a result, QNB Group keeps to its current forecast of 1.5% US growth in 2014.

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