IMF downgrades U.S. growth forecast -- what does that say about Obama's budget projections? 

President Obama's budget projections are all based on the idea of a strong economic recovery, but on Friday, the International Monetary Fund trimmed its 2011 and 2012 growth forecasts for the U.S.

The IMF now forecasts U.S. gross domestic product of 2.5 percent in 2011 and 2.7 percent in 2012, yet Obama's budget proposal anticipated growth of 2.7 percent and 3.6 percent, respectively. While that may not seem like a big deal, small fluctuations in GDP can make a huge difference on deficits because economic performance has an effect on both sides of the budget ledger. Greater growth means more revenue because more people are employed and earning higher incomes, but it also means less spending on so-called "automatic stabilizers" such as unemployment benefits.

And if you're keeping political score, weaker growth will obviously harm Obama's reelection prospects. The Obama administration has often tried to draw parallels  between its political prospects and the Reagan experience. Like Obama, Reagan was elected during an economic downturn and suffered losses in the midterm elections as the economy didn't recover quickly enough, but by the time he was up for reelection, the economy was booming again, and he won in a landslide.

Yet the problem with that analogy is that the Reagan recovery saw GDP surge by 4.5 percent and 7.2 percent in 1983 and 1984,and the Obama economy isn't going to achieve that in anybody's wildest dreams.

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Philip Klein

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