MORGAN STANLEY: This Is What Will Happen To Government Deficits Over The Next Two Years

Photo: Hulton Archive / Getty Images

European nations are forcing austerity on their people in a bid to cut government deficits. Meanwhile, the super committee’s failure to reach a deal on federal deficit cuts has left the U.S. with $1.2 trillion in automatic spending cuts that will kick-off in 2013, which could shave 0.5% off GDP.With fiscal tightening rising in developed markets, a slowdown in growth is a real problem facing the global economy.

Morgan Stanley has put out its estimates of general and primary government budget deficit projections for 2011 – 2013.

Note: The general government budget balance includes all levels of government (federal, regional, local) as well as the social security system. The primary balance excludes net interest payments by the government.

U.S. GDP growth is expected pick up in 2012, then slow in 2013 if $1.2 trillion in automatic federal spending cuts begin.

General government budget balance as % of GDP

  • 2011: -10.7%
  • 2012: -9.1%
  • 2013: -7.5%

Primary general government budget balance as % of GDP

  • 2011: -8.7%
  • 2012: -7.9%
  • 2013: -6.0%

Source: Morgan Stanley

Germany is likely to fall into recession by winter without a new stimulus package. However the 2012 budget does not call for any meaningful stimulus.

General government budget balance as % of GDP

  • 2011: -1.5%
  • 2012: -1.7%
  • 2013: -1.2%

Primary general government budget balance as % of GDP

  • 2011: +0.7%
  • 2012: +0.5%
  • 2013: +1.6%

Source: Morgan Stanley

France's public deficit is expected to narrow driven by austerity measures, which will in turn be a drag on GDP growth.

General government budget balance as % of GDP

  • 2011: -5.8%
  • 2012: -5.0%
  • 2013: -4.0%

Primary general government budget balance as % of GDP

  • 2011: -3.2%
  • 2012: -2.1%
  • 2013: -0.8%

Source: Morgan Stanley

Italy is expected to be in recession in 2012, but intense austerity measures are likely to narrow the budget deficit.

General government budget balance as % of GDP

  • 2011: -4.2%
  • 2012: -3.5%
  • 2013: -2.8%

Primary general government budget balance as % of GDP

  • 2011: +0.9%
  • 2012: +2.2%
  • 2013: +3.0%

Source: Morgan Stanley

Spain is also expected to be in recession in 2012, but austerity measures at the regional level will help shrink budget deficits.

General government budget balance as % of GDP

  • 2011: -8.0%
  • 2012: -6.0%
  • 2013: -4.5%

Primary general government budget balance as % of GDP

  • 2011: -5.6%
  • 2012: -3.2%
  • 2013: -1.4%

Source: Morgan Stanley

The Netherlands has been in contraction since Q3 on aggressive fiscal tightening, which is in turn expected to tighten deficits.

General government budget balance as % of GDP

  • 2011: -4.2%
  • 2012: -3.7%
  • 2013: -3.0%

Primary general government budget balance as % of GDP

  • 2011: -2.6%
  • 2012: -2.0%
  • 2013: -1.2%

Source: Morgan Stanley

Belgium has yet to form a coalition government and has not yet released details of its 2012 budget. Based on its existing 'Stability Programme', deficits are expected to be unchanged in 2012.

General government budget balance as % of GDP

  • 2011: -3.7%
  • 2012: -3.7%
  • 2013: -3.2%

Primary general government budget balance as % of GDP

  • 2011: -0.2%
  • 2012: -0.1%
  • 2013: +0.6%

Source: Morgan Stanley

Greece will continue to be in deep recession in 2012, but the decline is expected to decelerate. Severe fiscal austerity measures is expected to help deficits narrow.

General government budget balance as % of GDP

  • 2011: -9.5%
  • 2012: -7.2%
  • 2013: -4.1%

Primary general government budget balance as % of GDP

  • 2011: -3.1%
  • 2012: -0.3%
  • 2013: +1.8%

Source: Morgan Stanley

Austria is expected to avoid recession, however the government has not introduced any austerity measures. As a result, deficits are expected to rise in 2012.

General government budget balance as % of GDP

  • 2011: -3.5%
  • 2012: -3.8%
  • 2013: -3.3%

Primary general government budget balance as % of GDP

  • 2011: -1.0%
  • 2012: -0.5%
  • 2013: +0.3%

Source: Morgan Stanley

Finland is expected to see minimal GDP growth in 2012, and loose fiscal policies at local levels are expected to cause deficits to increase.

General government budget balance as % of GDP

  • 2011: -1.1%
  • 2012: -1.2%
  • 2013: -1.6%

Primary general government budget balance as % of GDP

  • 2011: +0.3%
  • 2012: +0.3%
  • 2013: +0.8%

Source: Morgan Stanley

Portugal is expected to fall into deep recession in 2012, driven by strict austerity measures, which in turn are expected to narrow deficits.

General government budget balance as % of GDP

  • 2011: -7.0%
  • 2012: -5.1%
  • 2013: -3.3%

Primary general government budget balance as % of GDP

  • 2011: -3.7%
  • 2012: -1.0%
  • 2013: +1.3%

Source: Morgan Stanley

Ireland is expected grow modestly in 2012, and the government may introduce additional tightening in its 2012 budget.

General government budget balance as % of GDP

  • 2011: -10.2%
  • 2012: -9.0%
  • 2013: -8.3%

Primary general government budget balance as % of GDP

  • 2011: -6.4%
  • 2012: -4.7%
  • 2013: -2.5%

Source: Morgan Stanley

Japan will raise taxes to fund post-earthquake reconstruction and it will likely introduce a consumption tax.

General government budget balance as % of GDP

  • 2011: -10.3%
  • 2012: -9.1%
  • 2013: -7.8%

Primary general government budget balance as % of GDP

  • 2011: -8.9%
  • 2012: -7.7%
  • 2013: -6.2%

Source: Morgan Stanley

United Kingdom's growth should pick up in the second half of 2013.

General government budget balance as % of GDP

  • 2011: -8.1%
  • 2012: -7.6%
  • 2013: -6.6%

Primary general government budget balance as % of GDP

  • 2011: -4.7%
  • 2012: -4.5%
  • 2013: -3.3%

Source: Morgan Stanley

Canada is expected to grow steadily at above 2% for at least the next two years.

General government budget balance as % of GDP

  • 2011: -3.8%
  • 2012: -3.5%
  • 2013: -3.5%

Primary general government budget balance as % of GDP

  • 2011: -3.2%
  • 2012: -3.0%
  • 2013: -3.0%

Source: Morgan Stanley

Sweden's economy is expected to slow significantly due to exposure to Europe, but temporary spending programs are phasing out, which should keep the budget in surplus.

General government budget balance as % of GDP

  • 2011: +1.0%
  • 2012: +0.4%
  • 2013: +0.7%

Primary general government budget balance as % of GDP

  • 2011: +2.1%
  • 2012: +1.3%
  • 2013: +1.5%

Source: Morgan Stanley

Australia's economy is expected to grow at a healthy clip in 2012 and 2013, but growth could quickly be derailed if China slows.

General government budget balance as % of GDP

  • 2011: -3.3%
  • 2012: -1.1%
  • 2013: -0.5%

Primary general government budget balance as % of GDP

  • 2011: -2.0%
  • 2012: -0.4%
  • 2013: +1.0%

Source: Morgan Stanley

Russia is expected ramp up government spending in Q4 and Q1 ahead of March 2012 elections.

General government budget balance as % of GDP

  • 2011: +1.0%
  • 2012: -1.0%
  • 2013: -1.8%

Primary general government budget balance as % of GDP

  • 2011: -2.7%
  • 2012: +1.8%
  • 2013: -0.4%

Source: Morgan Stanley

India is expected to cut back on government-driven consumption, which should slow growth and narrow deficits.

General government budget balance as % of GDP

  • 2011: -7.9%
  • 2012: -7.0%
  • 2013: -6.7%

Primary general government budget balance as % of GDP

  • 2011: -2.4%
  • 2012: -2.3%
  • 2013: -2.1%

Source: Morgan Stanley

China's GDP is expected to slow from 9% in 2011 to 8.4% in 2012, but rise to 8.7% in 2013.

General government budget balance as % of GDP

  • 2011: -2.0%
  • 2012: -2.0%
  • 2013: -2.0%

Primary general government budget balance as % of GDP

  • 2011: -1.5%
  • 2012: -1.5%
  • 2013: -1.5%

Source: Morgan Stanley

Brazil's GDP growth is expected to accelerate, as the government implements easier fiscal policy.

General government budget balance as % of GDP

  • 2011: -2.5%
  • 2012: -2.0%
  • 2013: -2.0%

Primary general government budget balance as % of GDP

  • 2011: +3.1%
  • 2012: +3.1%
  • 2013: +3.1%

Source: Morgan Stanley

Now check out how the U.S. economy will look in the coming years...

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.