US deficit swells on rescue efforts

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WASHINGTON, March 21 (AFP): A new forecast yesterday showed US economic rescue efforts would push the budget deficit to the biggest per centage of the economy since 1945, as EU officials pledged aid to Eastern Europe but balked at boosting their own stimulus efforts.
The Congressional Budget Office said its latest budget deficit estimate for fiscal 2009, which ends on September 30, would amount to 1.845 trillion dollars, or 13.1 per cent of the country's entire economic output.
The new projections were based on a sweeping 3.55-trillion- dollar multiyear budget proposed by President Barack Obama's administration to Congress in February.
Obama has acknowledged the size of his budget's 1.752- billion-dollar deficit in 2009 would require "some hard choices" on spending priorities.
The White House said the new CBO forecasts would not trim the Democratic president's objectives or thwart his plan to halve the shortfall by 2013.
"None of the numbers today changed the president's either objectives or his ability to achieve that deficit reduction," White House spokesman Robert Gibbs said. Republicans grabbed the ammunition to push back against Obama's massive budget package that teams tax cuts and heavy spending.
EU leaders meanwhile pledged billions to support Eastern Europe and the International Monetary Fund but insisted they would not spend more on their own economies despite a record slump in eurozone industrial output.
The collapse in eurozone factory output and an unprecedented fall in British car production highlighted the spreading damage caused by the financial crisis.
With some 4.5 million European jobs at risk in 2009, European leaders said current stimulus efforts must be allowed to work first before any more is done given the strain already on public finances.
They agreed at a summit in Brussels to double loans available to eastern Europe to 50 billion euros (68 billion dollars) and to add 75 billion euros (102 billion dollars) to the IMF's coffers.
British Prime Minister Gordon Brown said European leaders had agreed to do "whatever is necessary to restore jobs and growth."
Europe wants to double the resources of the IMF to 500 billion dollars while Washington has suggested raising them to 750 billion dollars.
The IMF has repeatedly warned that its ability to lend to countries in difficulty could fall dangerously low if the economic crisis persists.
Official figures on Friday showed industrial output in the 16 nations using the euro slumped 3.5 per cent in January from December and slumped 17.3 per cent over 12 months.
The slide, the sharpest on record going back to 1990, showed that the downturn in the industrial sector gathered pace at the start of the year.
In the 27-nation European Union, industrial output fell 2.9 per cent in January over one month and 16.3 per cent over one year.
"The dreadful industrial production figures for January confirm that the eurozone recession is deepening rapidly and that further macroeconomic stimulus is urgently required," ING economist Martin van Vliet said.
Washington has been pressing the EU to do more to fight the worst global slump in decades ahead of a Group of 20 top economies meeting next month in London, but Europe wants to keep its spending within limits if possible. There were other signs of distress in Europe.
Car production in Britain slumped 59 per cent in February as the recession battered demand, after falling 47.5 per cent in December.
In Germany, steel giant ThyssenKrupp was reported to be planning 3,000 job cuts, the first time a German industrial group would axe permanent posts as a result of the recession which the government said is getting worse.
"Current economic indicators are on the whole pointing to a further worsening of the situation compared to the fourth quarter," the German finance ministry's monthly report said.
"Indicators signal that the contraction of gross domestic product is accelerating in the first quarter... the recession is therefore getting worse in Germany."