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CBO slashes GDP expectations in half for 2014

President Barack Obama points out a special guest as he speaks during the American Legion national convention in Charlotte, N.C., Tuesday, Aug. 26, 2014. Three months after a veterans' health care scandal rocked his administration, President Barack Obama is taking executive action to improve the mental well-being of veterans. The president was to announce his initiatives during an appearance before the American Legion National Convention that is fraught with midterm politics. (AP Photo/Chuck Burton) AP Photo/Chuck Burton

The Congressional Budget Office on Wednesday said it expects the U.S. economy to grow by just 1.5 percent in 2014, a 50 percent cut from the prediction it made six months ago.

Back in February, CBO predicted that U.S. gross domestic product would see a 3.1 percent increase. But it's latest report on the budgetary and economic outlook said surprising weakness in the first half of the year will significantly reduce that more optimistic estimate.

President Barack Obama will preside over another disappointing year for GDP growth in 2014, if the Congressional Budget Office's latest prediction is right. (AP Photo/Chuck Burton)

"Real GDP grew at an annual rate of only 0.9 percent during the first half of this calendar year, but CBO expects stronger growth during the second half, in part because the effects of some restraining factors in the first part of the year, such as bad weather, have abated," CBO said.

"All told, real GDP will increase by 1.5 percent from the fourth quarter of 2013 through the fourth quarter of 2014, CBO estimates," it added.

If CBO's prediction holds, it will mark another disappointing year in a recovery that many say has been among the weakest on record. The U.S. economy grew just 1.9 percent in 2013, and has yet to exceed 2.5 percent since the recession in 2009.

Some Republicans have dismissed the arguments that snow and other bad weather at the start of the year are to blame for poor economic growth, and say those arguments are mostly aimed at sparing the Obama administration from blame. Many Republicans say Obamacare, expanding government regulations and higher taxes under Obama are more important factors that are limiting growth.

Whatever the cause, the slowdown surprised many, including CBO. "The agency has significantly lowered its projection of growth in real GDP for 2014, reflecting surprising economic weakness in the first half of the year," its report said.

Despite its lowered expectations for this year, CBO increased its economic predictions for the next few years. Back in February, CBO anticipated an average 3.1 percent growth rate from 2014 to 2017.

But in its new report from Wednesday, CBO said it expects an average 3.4 percent growth rate from 2014 to 2016. CBO said it sees stronger growth in the next few years because of new business investment, more consumer spending, and fewer vacant housing units.

Regarding the government's budget, CBO said the total amount of new debt added to the national debt in 2014 would be $506 billion. That's down from the $680 billion debt in 2013, but a bit higher than the $492 billion it predicted back in April.

CBO said "lower-than-anticipated receipts from corporate income taxes" are the main cause of the increased debt.

As it has warned in past reports, CBO said that while the annual debt increases have fallen, they are expected to rise again in 2016 if nothing is done.

CBO's latest projections say the annual debt will spike up to $960 billion in 2024, and that the debt-to-GDP ratio will rise to 77 percent by then.

"The large and increasing amount of federal debt would have serious negative consequences, including the following: increasing federal spending for interest payments, restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis," CBO warned.

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