We warned in November - Lombard Street Research

14 November 2013
Fiscal brag
The US government has tightened fiscal policy by more than most major European
governments since 2010, yet the economy has performed relatively well. This
suggests a smaller US ‘multiplier’. While significant fiscal risks remain, the impact of
government austerity – both in Europe and the US – should fade in 2014.
Chart 1: Budget consolidation
3.5
change in structural budget balance, %pts
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2010-12
US
2013
euro area
2014
UK
Euro periphery
Source: average of IMF and OECD estimates
1. Tight club
The US has administered a larger structural fiscal tightening than any of the major euro-area
economies since 2010. Despite this, the economy has achieved a respectable growth rate
while much of Europe has languished in recession. In part, this reflects higher trend GDP
growth, but there are also reasons to suspect the US fiscal ‘multiplier’ has been lower.
2. Multiply harder
the macro picture
is edited by Dario Perkins
dario.perkins@
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US budget tightening started later than in Europe. By then, the banking sector was in better
health and private-sector deleveraging had faded. In contrast, European consolidation began
in the midst of a crisis, while the private sector was still struggling with excessive debts.
Large trade exposure and policy synchronization further strengthened the euro fiscal drag.
3. Money matters
Differences in monetary policy were also important. In the US and the UK, central banks
tried to counter the impact of fiscal tightening with aggressive QE and falling exchange
rates. These efforts have been partially successful. In contrast, the ECB has resisted calls for
QE and monetary conditions across the periphery have stayed tight.
4. Easy squeezy
The fiscal drag in the US and Europe should fade in 2014, but there are considerable risks. In
the US, ‘sequestration’ is yet to show up in the GDP data and Congress faces another tricky
debt-ceiling negotiation next year. In the euro area, governments have recently reneged on
promised austerity and could face renewed pressures to cut their budgets.
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14 November 2013
Fiscal brag
Europe’s fascination with austerity has been an important theme for markets over the past
two years, yet it is the US that has made the larger budgetary adjustment. Combining IMF
and OECD data, the Americans have tightened their structural budget position by around
4% of GDP since 2010 – more than in Italy and Spain and similar to the adjustment recorded
for the UK. Yet, US GDP growth has averaged 2.2% while much of Europe has been
stagnant or in recession. In part, this reflects higher levels of trend GDP growth in the US,
which means it takes a larger fiscal drag to stop the economy growing.
But there are also good reasons to suspect a lower US fiscal ‘multiplier’, at least recently.
(The multiplier measures the impact on GDP of a given change in government
spending/taxes.) In particular, the Americans waited until after their economy was recovering
before they began to tighten fiscal policy. By then, the banking sector was in better health
and private-sector deleveraging had started to fade. In contrast, the Europeans – under
actual or perceived market pressures – cut government spending and raised taxes while their
economies were still fragile. This compounded the pressure on households and businesses to
curtail their own spending, prompting a vicious austerity-recession spiral.
Two additional US-euro differences have been important. First, trade exposures are greater
in Europe and with much of the continent tightening policy simultaneously; this increased
the damage caused by austerity – exports also weakened materially. Second, while the Fed
and the Bank of England tried to offset the fiscal contraction with aggressive QE, the ECB
resisted these policies. This kept monetary conditions in the euro area relatively tight,
especially in periphery countries. It also supported a stronger euro, whereas the US dollar
and GB pound fell precipitously as their recessions took hold.
The drag from US and euro-area fiscal policy should ease in 2014. On average, these
countries are set to tighten their budgets by around 1% of GDP. For the US, this compares
to a 2½-3% of GDP squeeze in 2013. Even if we assume a modest multiplier, this should
prompt a material acceleration in GDP. But significant budgetary risks remain. Congress
faces another debt-ceiling showdown in early 2014 and if recent experience is repeated, this
could lead to further budget cuts. Moreover, the recent ‘sequestration’ in public spending
has yet to show up in GDP data, implying risks to growth in 2013Q4 and 2014Q1.
There are also fiscal threats in Europe. Periphery euro-area countries have eased up on
austerity in 2013, making less progress than they promised. This contributed to the region’s
recent ‘growth’ surprise. Now their economies have stabilized, the EU authorities might insist
on more aggressive budget cuts in 2014.
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14 November 2013
1. Tight club
The austerity debate
The ‘fiscal multiplier’ hit financial headlines in October 2012 when Olivier Blanchard, the
IMF’s chief economist, published a box in the World Economic Outlook arguing that tighter
fiscal policy was having a more pronounced negative impact on European growth than
policymakers had assumed. The ‘multiplier’ – the impact on GDP of a given change in taxes
and/or government spending – was higher. Blanchard argued policymakers had been
assuming a multiplier of around 0.5, while in practice the multiplier had been in the range of
0.9-1.7%1. As a result, official economic projections had proved wildly optimistic.
Table 1: Typical pre-crisis fiscal multipliers
Government spending
Taxes
Consumption
Benefits
Indirect
Direct
France
-0.65
-0.33
-0.11
-0.26
Germany
-0.46
-0.29
-0.12
-0.25
Greece
-1.02
-0.44
-0.29
-0.37
Ireland
-0.33
-0.11
-0.06
-0.08
Italy
-0.62
-0.17
-0.06
-0.12
Japan
-1.15
-0.58
-0.43
-0.48
Netherlands
-0.51
-0.19
-0.05
-0.15
Portugal
-0.70
-0.17
-0.06
-0.12
Spain
-0.74
-0.17
-0.16
-0.12
UK
-0.55
-0.14
-0.14
-0.08
US
-0.90
-0.25
-0.27
-0.16
Source: NIESR simulations as reported by the OECD
For critics of European austerity, including Lombard Street Research, this confirmed an
argument we’d been making for some time – fiscal retrenchment damages economic
growth, especially during a recession. While this might sound obvious, there is still a view –
popular in parts of Europe – that government austerity has only a mild effect on growth and
might even boost private-sector spending. Yet, despite all the hoo-hah surrounding
European austerity, it was not just the Europeans who were cutting their deficits.
1
A multiplier of 0.5 means a 1% pt cut in government spending reduces GDP by 0.5% pts, with a multiplier
of 0.9-1.7 that rises to 0.9-1.7% pts.
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Chart 2: Fiscal tightening continues
-1.0
structural budget position, per cent of GDP
-3.0
-5.0
-7.0
-9.0
-11.0
09
US
10
11
euro area
12
UK
13
14
euro periphery (incl Italy and Spain)
Source: Average of IMF and OECD
Back to black
The IMF and the OECD publish regular fiscal updates (including projections) for the world’s
major economies. There are three main factors that can cause these to change over time: (i)
changes in economic growth (which affects tax revenues and government spending); (ii)
one-off temporary factors (e.g. the proceeds from privatizations); and (iii) policy changes.
Because we want to investigate the impact of actual policy changes (i.e. austerity), we
restrict our analysis to ‘structural’ budget balances. These adjust the fiscal position for the
impact of the economic cycle. Yet since this is a subjective exercise, the IMF and the OECD
estimates occasionally differ. To allow for this, we use averages of the two – see Chart 2.
Chart 3: European growth lagging the US
110
real GDP, 2009Q2 = 100
108
106
104
102
100
98
08
09
US
10
11
euro area
12
13
UK
Source: National accounts, LSR estimates
As Chart 2 shows, most major economies have been pursuing tighter fiscal policy since
2010. Structural deficits have narrowed. This is a marked turnaround from the experience of
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14 November 2013
2007-2010, when governments cut taxes and raised their spending in an attempt to revive
their economies. The most interesting point from Chart 3, which is often forgotten in the
austerity debate, is that the US has actually tightened fiscal policy by more than most of the
major European economies.
Chart 4: Government revenues and spending
3
2011-13 change, percentage points of GDP
2
1
0
-1
-2
-3
US
SPA
FRA
Govt revenues
ITA
UK
EA
Govt spending
Source: IMF estimates, note: not cyclically adjusted
Yet, the negative economic impact of austerity has been less obvious in the US. As Chart 3
shows, the economy has continued to grow while Europe (including the UK, which also
introduced deep fiscal cuts) has stagnated. In part, this reflects differences in underlying
growth rates. For example, the OECD thinks potential/trend GDP growth in the US is 2¼%,
compared with just 0.75% in the euro area and 0.75-1% for the UK. So, even if the US and
European governments introduced the same fiscal contraction and faced similar multipliers,
we should expect US growth to beat euro growth by a significant margin.
Tax and spend
Differences in the composition of fiscal tightening can also be important. As Table 1 (above)
shows, spending cuts typically have a larger negative impact on the economy than increases
in taxation. This is because they take money directly out of the economy, whereas tax hikes
work indirectly through private-sector demand. In principle, taxed individuals and companies
can offset the impact of austerity by reducing their own saving.
Unfortunately, it is difficult to obtain ‘structural’ estimates of government revenues and
spending that are comparable across countries, so we’ll have to make do with data that do
not adjust for the economic cycle (Chart 4). These suggest US austerity has been a mixture of
revenue and spending changes, whereas European austerity has focused more on tax
changes (with the exception of Spain and the UK). Since this should have reduced the
European fiscal multiplier relative to that of the US, this doesn’t seem important in explaining
the US’s superior growth performance. Other factors dominate.
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14 November 2013
2. Multiply harder
Timing matters
There are various reasons why US fiscal tightening has had a less noticeable impact on
growth – a lower fiscal multiplier – than in Europe. To start, the timing was important. US
fiscal tightening didn’t really begin until mid-2011, when the US hit its now infamous ‘debt
ceiling’. To raise the ceiling, the government was forced to agree a multi-year package of
spending cuts (known as ‘The Budget Control Act’ – more on this in section 4). By then, the
economy was already two years into its (admittedly sluggish) recovery and the forces that
were keeping growth down had started to fade.
Chart 5: US household deleveraging
140
130
debt as a per cent of disposable income
120
110
100
90
80
70
60
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Actual
1970-2012 trend
Source: BEA, LSR estimates
An over-leveraged financial sector, excessive levels of household debt and a housing bubble
caused the 2009 recession. By 2011, the health of the banking sector had improved
substantially. Leverage levels had come down and officials had – more than two years earlier
– completed a successful stress test/recapitalization exercise, which had restored investor
confidence. Household debt was still falling as a share of income, but the housing market
had stabilized and the pressure on households to reduce their borrowing had eased.
In contrast, European fiscal tightening started earlier (in 2010 for the periphery countries)
when the recovery was fragile and the private sector had made only limited progress
rebuilding its balance sheet. Euro austerity then gained traction through 2011-12 with the
economy remaining in bad shape and the financial sector in the midst of a euro-related
crisis. The banking sector was under intense pressure to reduce its leverage, in response to
both regulatory changes and widespread euro breakup fears.
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Chart 6: US housing recovery
80
20
70
15
60
10
5
50
0
40
-5
30
-10
20
-15
10
-20
0
-25
01 01 02 02 03 03 04 05 05 06 06 07 08 08 09 09 10 10 11 12 12 13
NAHB index
Case-Shiller house prices (YoY%, RHS)
Source: National Association of Home Builders, S&P
Chart 7: Europe's weak banks
120
ratio of tangible assets over tangible equity (end 2012)
100
80
60
40
average: 22x equity
average: 29x equity
20
0
each bar represents an unnamed large banks
Source: IMF Financial Stability Report, October 2013
Depression multipliers
The fiscal multiplier is likely to be higher in a depressed economy, especially when the private
sector is trying to rebuild its own balance sheet. A number of recent studies support this
conclusion, typically finding multipliers in a 0-1 range during times of strong growth versus a
range of 1.5-3 during recessions2. This makes sense – during a recession, tight credit markets
magnify the impact of government consolidation because a large share of households and
businesses are unable to borrow, meaning their spending is tied more closely to their
2
See for example, ‘Fiscal multipliers in recession and expansion’ (Auerbach and Gorodnichenko, 2011),
‘Confidence and the transmission of government spending shocks’ (Bachmann and Sims, 2011), and ‘Fiscal
policy in a depressed economy’ (Delong and Summers, 2012)
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14 November 2013
income. Low of declining confidence will also prevent the private sector from offsetting the
impact of higher taxes through lower saving.
By the time the US government had tightened fiscal policy in 2011, the fiscal multiplier had
fallen back towards more ‘normal’ levels. Indeed, Olivier Blanchard’s work for the IMF
showed fiscal multipliers were significantly smaller in 2011-13 than they had been in 200911. That’s not to say fiscal tightening had no impact on the economy, but it caused
significantly less damage than the austerity that was taking place in Europe, where
economies were weak and fiscal multipliers were unusually elevated.
Chart 8: Export exposure
50
export volumes as a per cent of GDP
40
30
20
10
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
euro area
US
UK
Source: National accounts
Synchronized dimming
Remember also that most euro-area governments tightened fiscal policy simultaneously.
Combined with strong intraregional trade links, this further raised the fiscal multiplier. For
example, research from the OECD suggests fiscal tightening is up to a third more
recessionary if it is synchronized across countries3. Domestic fiscal tightening weighs on
demand, while external tightening hurts exports and discourages business investment. For
most European countries (including the UK because half of its exports go to the euro area)
this meant a much larger drag on demand than it did in the US (which has less exposure to
the euro area and a smaller export sector overall).
3
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See ‘The effectiveness and scope of fiscal stimulus’, OECD Economic Outlook
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14 November 2013
3. Money matters
So far we haven’t mentioned monetary policy, but this also has an important bearing on the
size of the fiscal multiplier. Pre-2008, most estimates of the fiscal multiplier were based on
econometric models that assumed a central bank response. For example, because fiscal
tightening hurts aggregate demand and reduces inflation, it should prompt the central bank
to cut interest rates. And by cutting rates and reducing the exchange rate, the central bank
is able to offset some of the impact of tighter fiscal policy.
Chart 9: Central bank policy easing
8
main policy rate, per cent
6
4
2
0
-2
-4
* adjusted for QE (see text)
99
00
01
02
03
ECB
04
05
06
07
BoE*
08
09
10
11 12
Fed*
13
Source: Federal Reserve, ECB, Bank of England, LSR estimates
During the latest round of government austerity, policy rates were already at the ‘zero
bound’ so the central banks couldn’t use this conventional policy tool. While this was true
for all the major central banks, the Fed and the Bank of England tried to get round this
problem using Quantitative Easing (QE). There are legitimate questions about how effective
these policies have been, but based on those central bank’s own estimates, they were able
to push effective policy rates well below the zero bound (chart 94)
In contrast, the ECB was opposed to QE, for both technical and philosophical reasons. The
ECB argued this policy wasn’t within its mandate because it had no single fiscal authority
from which to buy bonds and buying the bonds of individual countries would amount to
creating fiscal transfers. In addition, the ECB was worried about the longer-term inflation
and moral hazard risks associated with QE. As a result, monetary policy has remained
significantly tighter in the euro area than in the US and the UK.
4
For an explanation of how we construct these QE-adjusted policy rates, see ‘Zero Bind’, the
macro picture, 31 October 2013.
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14 November 2013
Chart 10: Monetary-fiscal policy mix
7
cumulative change in policy, % pts (2010-13)
POR
Change in structural
6 fiscal balance
5
4
SPA
GER
3
FRA
ITA
Total cut in policy rates (* adjusted for QE)
2
0
UK*
US*
0.5
1
1.5
2
2.5
Source: IMF, OECD, Federal Reserve, BoE, ECB
Chart 11: US/UK currency depreciation
120
115
110
105
100
95
90
85
80
75
70
broad trade-weighted indices, January 2006 = 100
06
07
08
sterling
09
10
11
US dollar
12
13
euro
Source: Bank for International Settlements
Relatively tight monetary policy has been a serious problem for the euro-area periphery,
where most companies and households have faced interest rates substantially higher than
the ECB’s official policy rate. ‘Financial fragmentation’, perceived credit risks and residual
fears about euro exit have prevented the ECB’s monetary decisions feeding through to these
economies, ensuring a particularly high fiscal multiplier for these countries. Meanwhile, there
was little offset from the exchange rate. The ECB’s resistance to QE plus the fact these
countries are tied to Germany’s large export surpluses, has prevented the euro falling as
much as needed. This is another sharp contrast to the experience of the US and the UK,
which saw their currencies fall precipitously as they entered recession.
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14 November 2013
4. Easy squeezy
Our argument is not that fiscal policy has had no impact on US growth over the last few
years, but rather that the impact was not as devastating for the economy as the adjustment
that took place in Europe. In absolute terms, the US government has still tightened fiscal
policy substantially and this has been an important constraint on overall demand. At this
point it is worth reviewing in more detail what has been driving these budget cuts because
this will give us some idea about how fiscal policy is likely to change in 2014.
US austerity
US fiscal tightening started in August 2011 with the Budget Control Act. This temporarily
raised the debt ceiling, but only under the condition that the government introduce ‘budget
enforcement mechanisms’. These included $2.1 trillion in spending cuts (implemented as
caps on discretionary spending) between 2012 and 2021, plus another $1.2 trillion in cuts
that would start in January 2013. Congress set up a ‘supercommittee’ that had the task of
deciding which areas of spending to cut. When they failed to agree a plan, automatic cuts
(‘sequestration’) came into effect in March 2013.
Chart 12: Budget Control Act spending caps
10.0
9.5
2.0
discretionary spending, per cent of GDP
1.0
9.0
0.0
8.5
-1.0
8.0
-2.0
7.5
-3.0
7.0
-4.0
6.5
-5.0
6.0
-6.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Incremental tightening (RHS)
2011 baseline
Budget Control Act caps
Source: CBO, LSR estimates
In addition, a number of tax and spending measures – largely the result of stimulus measures
introduced in 2003 and 2010 – were due to expire in December 2012. Failure to extend
these would result in a further tightening in fiscal policy (the infamous ‘fiscal cliff’).
So three main forces have provided the bulk of the fiscal drag:
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(i)
Annual spending caps that began in 2012;
(ii)
Automatic cuts in spending that began in March 2013 (‘sequestration’);
(iii)
Failure to rollover past stimulus policies (‘the fiscal cliff’).
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14 November 2013
Estimating the combined fiscal tightening from these measures is tricky. For example,
because the spending cuts were introduced as caps on spending, they do not translate
directly into actual spending reductions. Still, we can get a rough idea of their impact by
comparing the caps with the level of spending expected before they were introduced. Chart
12 attempts to do this, using the CBO’s March 2011 forecast as a baseline. Note it is the
change in government expenditure that matters for GDP growth, not the government’s
estimates of future budget savings5. The spending caps clearly implied significant reductions
in spending in the short term, though the impact on GDP growth would eventually fade.
Chart 13: US government spending
2.0
contribution to quarterly annualized GDP, %pts
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
05
06
07
08
09
10
11
12
13
Source: BEA, LSR estimates
Working out the impact of sequestration is slightly easier because, at least in the short term,
this amounts to direct and immediate spending cuts. But it is proving difficult to judge the
timing of sequestration. Officially, the cuts started in March so we were assuming their main
impact would occur in Q2 and Q3. Yet, the latest GDP data show no evidence of this –
overall government spending has been flat. This suggests either the government has been
slower to implement sequestration than we assumed (implying risks to GDP growth in Q4
2013 and Q1 2014) or that other areas of government spending have offset their impact.
Finally, we have to judge the impact of the ‘fiscal cliff’. Congress (eventually) reduced the
size of the cliff by extending some fiscal measures and postponing others. For example, it
extended most of the Bush tax cuts and postponed a number of corporate tax hikes until
early 2014. Still, a significant hike in payrolls taxes went ahead and this reduced disposable
personal income by around 1½% in January (Chart 14). Fortunately, households managed to
offset the impact of this on their spending by reducing their saving. The saving rate fell by
around 0.8%pts after the tax hike (from 5.2% to 4.4%).
5
If government spending falls by 2% between 2011 and 2012, it is the 2% outturn that matters for GDP
growth, not the fact that spending might have increased 4% without the cap.
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Chart 14: Fiscal cliff tax hikes and personal income
10.0
percentage change on year earlier
8.0
6.0
4.0
2.0
0.0
-2.0
tax hikes
tax cuts
-4.0
08
09
10
11
Pre-tax income
12
13
After-tax income
Source: BEA, LSR estimates
Fading drag
Combing these effects, Table 1 presents our best estimate of the fiscal tightening that took
place in 2013 and what is likely to follow in 2014. These numbers are admittedly imprecise,
but they are reassuringly similar to the IMF’s latest estimates. This fiscal drag has been
substantial this year but, without further policy changes, it should fade in 2014. Given even
a modest assumption about the size of the US multiplier, this would suggest a marked
improvement in GDP growth. For example, with a multiplier of 0.5-1, 1½% points less fiscal
tightening would imply 0.75-1.5% pts higher GDP growth in 2014.
Table 2: Composition of US fiscal tightening
2013
Budget Control spending caps
‘Fiscal cliff’ tax hikes
2014
$bn
% of GDP
$bn
% of GDP
71
0.4
22.0
0.1
256.9
1.6
87.6
0.5
of which:
Payroll tax hike
123.5
Top-tier Bush taxes
65
Affordable Care
23.4
Unemployment insurance
-
-
33.8
0.2
Corporate taxes
45
0.3
39.5
0.2
Medicare
-
-
14.3
0.1
80
0.5
18.5
0.1
407.9
2.5
128.1
0.8
Sequestration
Total
Source: LSR estimates based on CBO data
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Chart 15: US fiscal uncertainty index
250
January 1986 - December 2010 = 100
230
210
190
170
150
130
110
90
70
50
85
87
89
91
93
95
97
99
01
03
05
07
09
11
13
Source: Baker, Bloom and Steven (policyuncertainty.com)
US fiscal risks
Yet, the recent government shutdown highlights the risks to this forecast. Congress faces
another debt-ceiling showdown in January/February and if recent experience is repeated, this
could lead to additional fiscal tightening. Despite the sharp reduction in the federal deficit
over the past three years, both political parties continue to emphasize the need for further
budget cuts. Moreover, postponing the debt ceiling extends the period of policy uncertainty,
which has already taken a toll on business investment (Chart 15).
Chart 16: Euro-area fiscal slippage
3
revision to 2013 structural balance forecast, %pts of GDP*
2
1
0
-1
-2
* Change in IMF forecasts between July 2012 and October 2013
POR
ITA
SPA
FRA
EA
UK
GER
GRE
IRE
US
Source: IMF Fiscal Monitor
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14 November 2013
European austerity risks
Meanwhile, there are continued fiscal risks in Europe. Budget consolidation has slipped in
2013 and many of the major euro-area countries have made less progress than they
promised (Chart 16). Spain is a clear example of this. After improving in 2012, Spain’s fiscal
deficit has recently started to widen again (Chart 17). Italy is also a problem. Following good
progress under former prime minister Mario Monti in 2011-12, the new government will
struggle to tighten policy further, as the recent bickering over VAT hikes illustrates.
Chart 17: Spain reverses austerity?
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
net borrowing, per cent of GDP
* excl. financial-sector support
00
01
02
03
Italy
04
05
06
Spain*
07
08
09
10
11
12
13
'Excessive deficit' limit
Source: national accounts, LSR estimates
Given the damage tight fiscal policy inflicted on the euro-area economy between 2010 and
2012, more pragmatic fiscal policy was certainly warranted. In fact, it contributed to the
euro area’s positive ‘growth’ surprise in 2013. LSR had expected a larger structural
tightening. But it is difficult to judge whether this softer approach to austerity is deliberate –
reflecting the European Commission’s focus on structural rather headline deficits – or
whether it shows the periphery countries simply reneging on promised consolidation ahead
of the German elections. Clearly the buoyancy of periphery markets has helped – European
policymakers no longer feel compelled by bond markets to tighten policy. But if these
countries continue to miss their budget targets, it might not be long before the surplus
countries accuse them of violating the ‘fiscal compact’.
Last word on the UK
Finally, recent client questions suggest investors are confused about what’s happening with
UK fiscal policy. The OECD’s forecasts point to a structural loosening in policy in 2013 with
some investors arguing this represents a deliberate fiscal expansion ahead of the 2015
election. Yet, the privatization of Royal Mail and the Bank of England’s profits from QE have
distorted recent UK fiscal data. The Office for Budget Responsibility’s (OBR) forecasts adjust
for this and show no let up in fiscal consolidation – on average the UK government has been
tightening its budget by 1% of GDP pa and that is set to continue in 2014 and 2015.
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Chart 18: UK fiscal distortions
10
per cent of GDP
8
OBR
forecast
6
4
2
0
-2
-4
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
Net borrowing
Net borrowing (ex Royal Mail & QE)
Source: OBR
So – summing up – fiscal policy has had an important bearing on the global economy during
the last four years. It will again prove decisive in 2014. Though the overall fiscal drag should
fade, budgetary decisions pose a major risk to our global GDP forecasts.
The next macro picture will be published on 28 November.
For a snapshot of LSR’s global view click here
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14 November 2013
Disclaimer
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