U.S. deficit to shrink to $559 billion in fiscal year 2017 - CBO

WASHINGTON (Reuters) - The U.S. budget deficit is expected to dip in fiscal year 2017 but expand later in the decade, the nonpartisan Congressional Budget Office said in a report on Tuesday that showed President Donald Trump inheriting a tricky long-term deficit picture.

The CBO projected the deficit to fall slightly to $559 billion (446.77 billion pounds) in fiscal year 2017 compared to $587 billion a year earlier, and it was seen lower still in 2018 at $487 billion. After that, according to the CBO, deficits are expected to grow steadily due to costs associated with the retiring baby-boom generation.

The CBO also forecast U.S. real gross domestic product growth in calendar year 2017 at 2.3 percent, slowing to 2 percent in 2018.

Swelling deficits will be a challenge for Trump and congressional Republicans after many in the party for years advocated budget restraint. Trump has promised tax cuts, massive new infrastructure projects, and a military expansion plan projected to cost hundreds of billions of dollars.

During his presidential campaign, Trump promised to slash government spending elsewhere but never detailed where the cuts would occur. He signed an executive order on Monday imposing a federal government hiring freeze.

The CBO said the dip in projected deficits in 2017 was partly due to a quirk in the calendar in which the first day of the fiscal year fell on a weekend, meaning some payments were shifted.

(Reporting by Emily Stephenson; Editing by Chizu Nomiyama and Will Dunham)

By Emily Stephenson