US recession could worsen budget deficit, despite lower interest rates, says Apollo

Investing.com -- The chief economist at Apollo Global Management (NYSE:APO) Inc. has warned that a potential US recession could significantly increase the country’s budget deficit, despite the potential savings from lower interest rates. Torsten Slok’s analysis suggests that a two percentage point drop in interest rates could lead to savings of around $500 billion in annual interest payments. However, the same recession could reduce tax income and necessitate increased unemployment benefits, leading to an overall growth in the budget deficit.

Historically, the budget deficit has grown by about 4% of the gross domestic product during recessions. This equates to an additional $1.3 trillion erosion of US government finances. "Creating a recession to lower long rates is not a good idea," Slok wrote in a note to clients, indicating that the negative impact on the deficit far outweighs the positive impact from falling rates.

Slok did not mention US President Donald Trump directly, but his trade policies have led Wall Street economists to increase the predicted likelihood of a recession. Despite a 90-day pause on so-called reciprocal tariffs for trading partners, which has eased market concerns, economists maintain that the risk of a downturn remains high.

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