–US Deficit Seen 10.8% of GDP 2011, 1.1 Points Worse Than Nov Estimate

By Heather Scott

WASHINGTON (MNI) – After a better-than-expected fiscal performance
in advanced economies in 2010, the International Monetary Fund warned
Thursday that the outlook for this year will be worse than anticipated,
due to new stimulus measures in the United States and spending in Japan.

The fund’s latest Fiscal Monitor projects a deficit of 7.1% of GDP
in advanced economies, four-tenths worse that the November estimate.
That compares to 7.9% in 2010, which was 0.3 points better than
projected in the last report.

The bulk of the blame for the worsening outlook rests in the United
States which is now expected to have a 10.8% deficit, 1.1 points more
than forecast in November. This after reaching 10.6% of GDP last year,
which was a half point better than expected.

“Despite the improving global outlook, the pace of fiscal
consolidation this year is slowing in some key countries,” the report
said. “The United States and Japan are adopting new stimulus measures
and delaying consolidation relative to the pace envisaged in the
November 2010 Fiscal Monitor.”

In Japan, the deficit is seen reaching 9.1% of GDP, 0.2 points
worse, and compared to 9.4% last year.

Although the U.S. and Japanese deficits are seen dropping
significantly in 2012, to 7.2% and 8.0% of GDP respectively, for the
U.S. that forecast still is five-tenths worse than anticipated in
November.

The IMF warns that “The overall pace of deficit reduction in
advanced economies in 2011 will be below earlier estimates. On average,
fiscal consolidation among the advanced G20, measured in cyclically
adjusted terms, is now projected to equal less than 1/4 percent of GDP
compared to the 1 percent of GDP projected in November.”

In addition, “Their debt ratio is anticipated to rise by almost 5
percentage points, to exceed 107 percent of GDP.”

The report cites U.S. legislation approved late last year, and said
“While some targeted measures to address the weak state of labor and
housing markets are justifiable, the packages composition means that
its stimulative impact will be small, relative to its fiscal cost.”

In contrast, the report said, “The largest European countries …
will all consolidate in 2011, broadly in line with earlier plans.”

The Euro Area is expected to lower the deficit to 4.6% of GDP from
6.4% in 2010, which will be four-tenths better than forecast.

But Canada’s situation is also seen eroding, and was one of the few
advanced economies where the performance was much worse than expected in
2010. The 2011 deficit is seen falling to 4.7% of GDP this year from
5.9% last year, but that is 1.8 and 1.0 points worse than the November
estimate.

Next year, Canada’s deficit is expected to fall to 3.3% of GDP,
which also is 1.2 points worse than previously forecast.

Emerging market economies have performed better, and as group
the deficit is little changed from previous expectations at 3.6% in 2011
from 4.3% last year. Brazil is the major exception, with the deficit
expected to be 2.1 points worse than projected in November, at 3.3% of
GDP compared to 2.8% last year.

Gross government debt levels for advanced economies are also seen
increasing beyond expectations, growing to 101% of GDP this year from
96.5% last year, and to 103% in 2012.

In emerging markets, the debt level is seen stable at 36.8% this
year.

** Market News International Washington Bureau: 202-371-2121 **

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