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08/18/2011

Consensus Forecasts of Government Budget Deficits

Many of our panellists, including those outside the Euro zone, have cited the Euro area’s sovereign debt crisis as a major downside factor affecting their forecasts (see page 29). Consequently, our Significant Changes analysis this month focuses on the budget deficit outlook in local currency terms and as a % of nominal GDP. After severe debt jitters in Greece, Ireland and Portugal, concerns have intensified. The euro currency is coming under significant downside pressure as the markets react to a perceived lack of policy direction. Greece reared its head again after its parliament passed (with some difficulty) emergency austerity measures in the face of massive protests and public anger.

Consensus Forecasts of Government Budget Deficits
Government Budget Deficits Chart Image
Consensus Forecasts of Government Budget Deficits
Government Budget Deficits  Chart Image

Germany’s Chancellor Merkel’s initial unwillingness to bail out the profligacy of another nation eventually led to acquiescence in the face of political discontent at home. According to the chart (bottom right), forecasts for the German deficit have been improving steadily on the back of a robust industry-led expansion. Deficit expectations for Spain, by contrast, have stalled somewhat as the weak recovery – and revelations about the true state of local finances – worsen the deficit outlook. Next in the crosshairs: Italy, with its massive public debt burden, stagnant growth profile and unstable government. Elsewhere, the US, UK and Japanese budgets have deteriorated. Japan’s earthquake disaster has not surprisingly impacted on public finances, while the UK’s austerity measures are depressing economic activity. In the US, failure to extend the constitutional limit on the debt ceiling (at US$14.3tn) before early August could stall public expenditure and trigger a credit crisis. The slowing economy is not helping matters.

Consensus Forecasts of Government Budget Deficits

Government Budget Deficits Chart Image

Notes:

e = consensus estimate based on latest survey.

1 Euro zone countries follow the Maastricht definition for budget balances. Others are home country definitions. The UK's Public Sector Net Cash Requirement (in £bn) is shown as a positive figure but this actually represents a deficit in the public accounts. We have changed it here from a + to a - in order to highlight that deficit and make it comparable with the other countries shown.

2 Germany, France, Italy and the Euro zone are Calendar Year data. Others are in Fiscal Years.




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