Salient to Investors:
The IMF said:
- Budget deficits in advanced economies will narrow at a faster pace in 2013 than in 2012 even as countries including the US and Japan lack clear plans to reduce their debt. Fiscal shortfalls will shrink to 4.7 percent of GDP in advanced nations in 2013, the narrowest since 2008, versus a 5.9 percent gap in 2012.
- Continued progress in reducing advanced economy deficits and a gradually improving external environment have lowered short-term fiscal risks, but global prospects remain subdued, and many advanced economies face a lengthy, difficult, and uncertain path to fiscal sustainability.
- The US overall fiscal gap will decline to 6.5 percent of GDP in 2013 from 8.5 percent in 2012, the euro area will decline to 2.9 percent from 3.6 percent in 2012, and Japan will decline to 9.8 percent from 10.2 percent in 2012.
- The absence of a clear and credible plan to bring debt ratios down over the medium term in the US and Japan is a significant concern.
- Falling deficits in advanced economies don’t negate the long-term impact of high debt, which, even if stable, retards potential growth, constrains the scope for future discretionary policy, and leaves economies exposed to further market shocks.
- Sharp increases in public debt have yet to provoke a surge in interest rates in many advanced economies, but lower rates won’t persist indefinitely, especially as they reflect in part very relaxed monetary conditions that must eventually be reversed.
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