World governments have come under immense pressure to reduce debts and deficits in the post-Financial Crisis era. This resulted in fiscal austerity programs that have inhibited economic growth.
However, the worst may be over.
“This is best illustrated by measures of the underlying, or cyclically-adjusted, budget deficit,” said Capital Economics’ Andrew Kenningham pointing to new IMF data. “On this basis, this year’s fiscal squeeze of around 1.4% of GDP for advanced economies will give way to a tightening of around 0.8% of GDP next year. This is one reason why we are forecasting a gradual acceleration of global growth next year.”
“The relief is likely to be greatest for the US,” noted Kenningham. “Once the shutdown is over, the fiscal year 2014 should see much smaller cuts than in 2013, when the deficit was cut by over 3% of GDP.”