Removing the business cycle from the government budget balance shows that the US currently has a much bigger cyclically adjusted budget deficit than the Euro area, see chart below. In other words, despite the strong economy, the US is still running a significant deficit.
If the US were to enter a recession, tax revenues would decline, and unemployment benefit payments would rise. Under that scenario, it is not unreasonable to assume that the budget deficit could reach 10% of GDP, as it did during previous recessions.
Source: IMF Fiscal Monitor, Apollo Chief Economist
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