Departing Trump Economist Sees Risk to 3% U.S. Growth Goal

(Bloomberg) -- A departing top economic adviser to Donald Trump said the chance of hitting the president’s growth target this year is becoming less certain amid risks from the trade war and a ballooning budget deficit.

There’s increasing uncertainty about America’s ability to hit the 3% growth goal that Trump has said the world’s biggest economy will surpass under his policies, said Kevin Hassett, chairman of the U.S. Council of Economic Advisers. Trump tweeted Sunday that Hassett, who was confirmed in September 2017, will leave the position “shortly.”

“I’m still at 3% for the year, but the point is the uncertainty about the forecast is much higher than the last time we talked," Hassett said on CNN on Monday, after being asked about the impact of the U.S. trade war. Growth in the second quarter was likely closer to 2%, he said. Gross domestic product expanded at a 3.1% annualized rate in the first quarter.

Hassett also said he was “very much concerned” about the growing fiscal deficit. To boost growth, the U.S. should consider cutting government spending, he said. “Fiscal consolidation should be on the table, absolutely,” Hassett said.

The deficit has expanded under Trump, fueled in part by tax cuts and fiscal stimulus that will cost $1.5 trillion over the next decade. Trump’s latest fiscal blueprint projected the budget won’t balance for 15 years, despite assuming stronger growth than private forecasters.

The country’s budget deficit rose to about 3.8% as a percentage of GDP last year, and is expected to hit 5.1% this year before easing, according to estimates from the White House Office of Management and Budget.

Speedier Growth

Trump has repeatedly argued the U.S. economy can grow faster than 3% on a sustained basis, pointing to the benefits of last year’s tax package. But the growth outlook has since dimmed amid the administration’s trade war with China. Trump has imposed duties on $250 billion of Chinese goods and is threatening to hit another $300 billion. The president said last week he plans to impose new tariffs on Mexico, roiling markets and opening a new front in the conflict.

Economists surveyed by Bloomberg forecast 2.6% GDP growth this year, followed by 1.9% in 2020. On Monday, the country’s factory gauge fell to the lowest level of Trump’s presidency as production, inventories, and deliveries all declined in May. The sector is on shakier ground as tariffs push up prices and create uncertainty for producers, already reeling from slowing global growth.

Still, the U.S. job market remains strong, with unemployment hovering near a five-decade low and wage growth picking up. The U.S. expansion is set to become the longest on record in July.

--With assistance from Reade Pickert and Josh Wingrove.

To contact the reporters on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net;Justin Sink in Washington at jsink1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Sarah McGregor

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