In the Hedgeye Chart of the Day below, we show the trend in the Deficit-to-GDP ratio. After reaching a peak of ~10% in 2009, the ratio has showed steady decline with accelerating improvement over the last year, alongside stronger economic growth, higher taxes, a retreat in stabilizer payments, and a number of non-recurrent inflows.
We expect the ratio to retreat further as the domestic macro data continues to reflect ongoing, albeit modest, improvement.
Indeed, yesterday, in its latest update to the long-term budget outlook (Here), the CBO projected deficit spending would continue to drop over the next few years, falling to 2% of GDP by 2015 with the Debt-to-GDP ratio declining to 68% from its current level of ~73%.
Yes, we are keenly aware that the long-term budget outlook, saddled with unsustainable growth in entitlement obligations, remains dire. We’ll break down the budget outlook in detail, by duration, in subsequent notes, but the key takeaway here is that the outlook for both growth and debt spending over the intermediate term remains positive.
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