* Obama team cites continued serious headwinds for economy
* Jobless rate seen lower, medium-term deficits slimmer
* Review assumes Congress will enact White House proposals
By Laura MacInnis
WASHINGTON, July 27 The White House cut its
outlook for U.S. growth in 2012 and 2013 on Friday, hours after
data showed the economy grew at a tepid pace in the second
quarter, raising concerns about a slowdown that could mar
President Barack Obama's re-election chances.
In its semi-annual budget review, the White House said it
expected gross domestic product to rise 2.3 percent this year
and 2.7 percent next year - less than the 2.7 percent and 3.0
percent growth projections it made in February.
"The economy still faces significant headwinds that have
held down growth and limited gains in employment," Jeffrey
Zients, acting director of the White House Office of Management
and Budget, said in a statement accompanying the review.
But the White House brightened its forecast for unemployment
- one of the key barometers of Obama's economic leadership - to
a 8.0 percent rate this year and 7.7 percent next year, from its
first estimate of 8.9 percent in 2012 and 8.6 percent in 2013.
It also said the deficit would be slimmer this fiscal year -
from October through September - than first anticipated, at
$1.211 trillion instead of $1.327 trillion, and be slightly
wider than first projected in fiscal 2013. Over
the next decade, the White House said cumulative deficits would
be $240 billion lower than it forecast in February.
The mid-session review, like the original White House budget
proposal released in February, assumes Obama's economic and job
growth proposals will be enacted despite the stark partisan
divisions in election-year Washington.
Zients said it also "reflects the administration's belief
that Congress can and must enact a comprehensive and balanced
deficit reduction package" to avoid mandatory spending cuts that
are due to take effect in January.
Stephen Stanley, chief economist at Pierpont Securities in
Stamford, Connecticut, said the deadlock in Congress had kept
many White House economic plans from being passed, and raised
questions about the basis of Friday's figures.
"These numbers can be a bit deceptive," he said.
The Committee for a Responsible Federal Budget, a Washington
think tank, said the lower growth forecast was a major reason
deficits were seen decreasing in the review, averaging 3.2
percent of gross domestic product over the next decade, compared
to a 3.3 percent average projected in February.
But it warned: "these estimates may turn out to be overly
optimistic ... and still fall short of putting the debt on a
clear and unequivocal downward path over the medium- and
Obama's 2013 budget proposal was not passed by Congress,
where Republicans controlling the House of Representatives
oppose raising taxes and Obama's fellow Democrats who control
the Senate want to collect more revenue alongside spending cuts.
An agreement struck last August to avert a sovereign default
set spending levels for this year. Another fight is brewing over
tax hikes and spending cuts slated for the end of 2012, a
convergence of timing referred to as the "fiscal cliff."
Kent Conrad, a North Dakota Democrat who chairs the Senate
Budget Committee, said after the mid-session budget review was
released that lawmakers needed to be ready to compromise to
avoid damaging the economic outlook.
"The solution must include a comprehensive and balanced
long-term deficit reduction plan. That can only happen if both
sides agree to move off their fixed positions," he said.
But Paul Ryan, a Republican from Wisconsin who chairs the
House Budget Committee, seized on the mid-session review as
showing strained growth with budget deficits remaining above $1
trillion for a fourth consecutive year.
"The administration's lack of seriousness when it comes to
responsibly prioritizing taxpayer dollars is unconscionable,"
Ryan said. "Instead of taking more from hardworking Americans
and small businesses, policymakers must advance principled
pro-growth solutions that spur job creation, lift the crushing
burden of debt and expand opportunity for generations to come."
Earlier on Friday, the Commerce Department said gross
domestic product expanded at a 1.5 percent annual rate between
April and June, the weakest pace of growth since the third
quarter of 2011.
The budget was a searing political issue last summer, when a
standoff between Democrats and Republicans over deficits and
taxes brought the country to the edge of sovereign default and
led to a credit rating downgrade.
Friday's weak second-quarter growth figure and continued
concerns about unemployment are major political worries for
Obama ahead of the Nov. 6 presidential election. His presumed
Republican opponent Mitt Romney has criticized the Democrat as
lacking the experience needed to straighten out the economy.