(MoneyWatch) The White House on Monday revised downward its forecast for U.S. economic growth this year, citing government spending cuts, the ongoing recession in Europe, and slowing expansion in China and other emerging markets.
In its so-called mid-session review, the Office of Management and Budget projected that domestic GDP will expand in 2013 at an annual rate of 2 percent. That's down from the 2.3 percent rate of growth that the Obama administration assumed in its annual budget in April. OMB also reduced its forecast for growth in 2014 to 3.1 percent, down a tick from 3.2 percent.
"Although Administration actions helped spark the ongoing recovery, the economy has faced serious headwinds that have held down the growth rate and limited gains in employment," OMB said in the report.
The mid-year estimate updates the White House's projections for government spending, revenue and the federal deficit.
White House officials sounded a more upbeat note last week after the U.S. Labor Department announced that the economy added 195,000 jobs in June, more than analysts had expected. The "U.S. economy is continuing to recover from the worst downturn since the Great Depression," wrote Alan Krueger, President Barack Obama's top economic adviser, in a blog post.
By some measures, that is true. Unemployment is falling more rapidly than the administration forecast three months ago, according to the latest numbers. The jobless rate, now 7. 6 percent, is expected to end the year at 7.3 percent. Unemployment is forecast to fall to 7 percent by the end of 2014.
"The decline in the unemployment rate over the past several months has been more rapid than expected when the 2014 budget forecast was finalized, and unemployment is now projected to decline somewhat more rapidly than in the budget projections," OMB said.
On a brighter note, the federal budget deficit is shrinking faster than forecast, the budget office also said. The White House estimates the current budget gap at $759 million, or 4.7 percent of GDP, down from its April estimate of $973 million.
"That is down from a deficit of 10.1 percent four years ago -- representing the fastest period of deficit reduction since the years immediately following World War II," wrote OMB chief Sylvia Mathews Burwell in a blog post.
According to the White House's budget projections, the deficit will fall to less than 3 percent of GDP by 2017 and to roughly 2 percent by 2023. Such forecasts assume no further shocks to the economy, along with congressional action aimed at sparking growth, which remains weak.
"Unfortunately, the economy is still not completely out of the woods yet," said economists with IHS Global Insight in a note to clients. "Because of poor export growth, manufacturing output has stalled. More importantly, the federal spending sequester will keep growth in check for the rest of this year."