White House sharply cuts growth forecast

President Barack Obama sharply cut estimates for US economic growth today, underscoring the difficult challenge he faces in spurring a stronger recovery and creating more jobs.

The president, who must curb high unemployment to improve his chances of winning re-election in 2012, will give a major speech on September 8 on how he plans to lift hiring and growth.

"The economic projections make clear there is a real need in the short term to kick start economic growth and get on a sustained higher growth path," White House budget chief Jack Lew told reporters on a conference call.

In a midyear review of its annual budget, the White House offered some hints of what Obama will say next week. It said the speech could include proposals for a mixture of tax cuts aimed at middle class families, infrastructure spending and aid for the long-term unemployed.

Under the new projections, the White House said the deficit would come down more sharply than expected to 8.8 percent of GDP this year, compared with the 10.9 percent forecast when the budget was released in February.

The improvement was largely due to spending cuts imposed under a deal struck last month by Obama and opposition Republicans to raise the US debt ceiling, which will shave $1.45 trillion from the deficit over the next 10 years.

But economic growth was marked down. The White House acknowledged that the outlook had deteriorated amid sharp financial market turbulence following ratings agency Standard & Poor's downgrade of the AAA US credit rating.

As a result, it offered an alternative economic forecast based on what has happened in recent weeks. This projects GDP growth this year of 1.7 percent, compared with 2.7 percent expected back in February, with 2.6 percent forecast for 2012, down from a 3.6 percent prediction in February.

However, the more subdued growth outlook did not have a major impact on the expected deficits, and growth was expected to rebound to above 4 percent by 2015.