Goldman Sachs’ analysts delivered a weekend note on the United States’ fiscal outlook, which carries some worrisome projections looking forward.
The US fiscal outlook is not good.
We project the federal deficit will increase from $825bn (4.1% of GDP) to $1,250bn (5.5% of GDP) by 2021. By 2028, we expect it to rise to $2.05 trillion (7.0% of GDP) in our baseline scenario.
We believe the risks are tilted in the direction of larger deficits than projected.
A recession would widen the deficit and boost the debt/GDP ratio.
An expanding deficit and debt level is likely to put upward pressure on interest rates, expanding the deficit further.
A chronic deficit in the range of 6-7% of GDP in the next decade would imply a cumulative boost of around 70bp over time.