The Bush administration said yesterday it expected the federal budget deficit to grow to $165 billion (€166.58 billion) this fiscal year, well above earlier projections.

While the White House voiced confidence in an economic recovery and said it would revise upward its economic growth projections, it acknowledged it did not expect a resumption of budget surpluses until the 2005 fiscal year.

Administration officials cited several reasons for this year's bigger-than-expected deficit, including the continuing economic slump, the anti-terrorism campaign and a drop in tax revenue led by a sharp reduction in capital gains taxes. This year's deficit will also officially end five consecutive years of surpluses, the last of which was $127 billion in fiscal 2001, which ended in September.

"The president deals with the cards that were dealt him," said Mr Ari Fleischer, the White House spokesman.

The White House expectation for a return to surpluses by 2005 assumes Congress will stick to the administration's proposals for restraint in non-defence-related spending, which is an unlikely prospect. The stock market slump threatens to worsen the budget picture and could pose a serious challenge to President George W. Bush and his fellow Republicans in November's congressional elections.

While polls show Mr Bush's overall approval ratings remain high, his marks for handling the economy have slipped. A CNN/USA Today poll showed his approval ratings for the economy fell from 72 per cent last October to 58 per cent now. A poll by the Pew Research Centre for People and the Press found 62 per cent believed he could do more on the economy, with only 33 per cent saying he had done as much as he could.

If public confidence in the economy continued to waver into the autumn, analysts said, it would be a huge boost for Democrats, who blame the re-emergence of budget deficits on Mr Bush's $1,350 billion tax cut. Republicans say the tax cut helped the US recover from the shocks of a recession and the September 11th terrorist attacks. They blame a surge in government spending, not lower taxes, for the deficit.