Two weeks before the CBO releases its annual Budget and Economic Outlook for the period 2018 – 2028, we are anticipating large upward revisions in the already bleak debt projections for the coming decade. Last year the CBO projected that at current spending levels and under certain macroeconomic parameters, public debt as a percent of GDP would reach 90 percent by 2027.
Considering more recent economic trends and less rosy economic assumptions, I would like to offer my own estimates for the debt-GDP ratio before the release of the CBO’s report in 2 weeks. I would assume, rather optimistically, that GDP growth in the coming decade will average close to 2 percent on an annualized basis, whilst fiscal deficits will climb to $1 trillion by 2019 and stay around that level for the foreseeable future. It is difficult to calculate all other economic trends over time, but I would assume a slowly declining labor force participation rate, 2-2.5 percent inflation, and 1 percent average annual productivity growth over the decade.
Below is a graphic of the CBO’s 2017 debt projection for 2017-2027, along with my own estimates for the period 2018-2028. It will be interesting to see how close the new revision of the budget and economic outlook is to either of these projections.
I predict that the public debt ratio will reach 80 percent by Q4 2018, 90 percent by Q4 2021, and 100 percent by 2025.
