Director’s Statement on An Update to the Economic Outlook: 2018 to 2028

Posted by
Keith Hall
August 13, 2018

Today, the Congressional Budget Office released An Update to the Economic Outlook: 2018 to 2028. The report presents the agency’s latest economic forecast, which includes projections of real (inflation-adjusted) gross domestic product (GDP) and other factors. 

In 2018, real GDP is projected to grow by 3.1 percent. For the second half of the year, CBO expects real GDP to grow at roughly the same average pace at which it grew in the first half of the year—that is, more slowly than during the second quarter alone, when it grew at a rate that would equal 4.1 percent if applied to the entire year. The reason is that several factors that boosted second-quarter growth—including a rebound in the growth of consumer spending after a weak first quarter and a surge in agricultural exports—are expected to either fade or reverse.

The 3.1 percent growth rate projected for 2018 is 0.6 percentage points faster than actual growth in 2017. The pickup expected this year is largely the result of increases in government spending, reductions in taxes, and faster growth in private investment. In 2019, the pace of GDP growth slows to 2.4 percent in the agency’s forecast, as growth in business investment and government purchases slows.

The growth of actual output is expected to outpace the growth of the maximum sustainable amount of output through the rest of 2018 and 2019, creating excess demand in the economy. That excess demand will put upward pressure on prices, wages, and interest rates over the next few years. From 2023 to 2028, real GDP is projected to grow by about 1.7 percent each year.

Economic projections are inherently uncertain. For example, when CBO completed this economic forecast in early July, the agency estimated that the macroeconomic consequences of the U.S. tariffs and foreign retaliatory tariffs that had been implemented at that time would be small. The new tariffs that were then in place affected goods that accounted for less than 1.5 percent of the total value of U.S. trade. However, trade policy has already changed since early July and may continue to evolve, so the effects of new tariffs may become more substantial and have a larger effect on the economy than CBO accounted for in its current projections.

The agency’s current economic forecast does not differ significantly from the forecast published in April, though it does incorporate several important changes. For example, the current forecast is based on the path for discretionary spending specified in CBO’s most recent budget projections. That path includes somewhat less fiscal stimulus over the next few years than did the path that the agency used previously. That revision slightly lowered the agency’s projections of output growth and interest rates in the near term. CBO also has further revised downward its forecast of interest rates over much of the projection period on the basis of information about financial markets and the projections of other forecasters. And CBO has revised slightly upward its near-term inflation forecast on the basis of recent data on consumer prices.

This report does not include updates to the agency’s baseline budget projections. As CBO explained last week in its Monthly Budget Review, it expects that the deficit, revenues, and outlays for fiscal year 2018 will be largely consistent with the amounts projected in its most recent baseline, which was last updated in May.

Keith Hall is CBO’s Director.