Narrow margins of fiscal policies

Deficits in many advanced economies were significantly reduced in 2011, and the majority intends to carry out substantial adjustments this year.

It is necessary to advance the adjustment to ensure medium-term debt sustainability, but ideally this should happen at a pace to support proper product and employment growth.

Given the strong adjustments put in place this year, Governments should avoid the application of even more restrictive policies in response to an unexpected growth slowdown, and instead should stop the automatic stabilizers to operate, provided that there is available funding and to ensure sustainability so permits.

Countries that have sufficient fiscal space, including some countries in the euro area, should reconsider the pace of adjustment in the short-term. At the same time, some countries, EE.UU. and Japan, u000aThey must clearly define their medium-term debt strategies.

Adjustment should have adequate financial rather than market support when, as in the euro area, the confidence of the market responds slowly to reforms.

Deficit
in advanced economies, fiscal deficits were reduced in 2011 in about 1% of GDP in general, and in just a little less if one takes into account the reduction of the output gap.

The total deficit was reduced by 2% of GDP in the euro area, and a still considerable 11 / 4% of GDP in terms adjusted cycle (table 1). However, much of the improvement in the euro area is attributed to Germany, where the cyclically adjusted deficit was reduced by 21 / 4% of GDP, due to an extremely vigorous response of tax revenue and employment to the evolution of the product.

The balance cycle-adjusted u000aalso improved significantly in Spain, while France and Italy advances were more modest, given that the announced or adopted measures in these countries not come fully into effect until the next year.

Also the cycle-adjusted deficits were substantially reduced in the United States. UU. and United Kingdom, but increased marginally by Japan due to reconstruction costs related to the natural disaster that struck this country.

Among the European countries that apply a program supported by the IMF, the total deficits were larger than expected in Greece in part due to a weaker than expected economic developments.

Deviations in the implementation of the measures of income and expenditure and the lower tax compliance suggest that the cyclically adjusted deficit also exceeded expectations, despite an improvement of 3 percentage points of GDP with respect to u000a2010.

In Portugal, the fiscal target was met by a partial exceptional transfer of the assets of pension funds placed in banks. In Ireland, overall fiscal performance is maintained within the course, and the cyclically adjusted balance improved 2% of the GDP.

( )
Projections for the economy of USA. U.S.
En United States, is planned for this year a strong deficit reduction cycle, about 1% of GDP-adjusted.

These projections are based on the assumption that Congress will extend the reduction of payroll taxes and unemployment benefits to unemployed persons for periods long beyond its completion date in late February.

Without this extension, the cyclically adjusted deficit would be reduced more than 2 percentage points of GDP, the biggest annual drop in at least four decades, what u000aIt would have.

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