Weekly Economic Briefing

Let’s get fiscal

19 August 2014

Global Overview

  • Fiscal stimulus, in the wake of the crisis, gave way to tightening too soon. Policymakers have recently slowed the pace of consolidation but structural reform is needed to ensure that markets believe that this time is different.
  • This is particularly the case for the Euro-zone, where fiscal slippage should only be tolerated if it is accompanied by growth-enhancing policy. Emerging markets, although certainly in a better position, should heed this warning.
  • Government spending in the US was a rare contributor, rather than a drag, to growth in Q2. Overcoming long-term sustainability problems requires coherent policy – but will politicking prevail?
  • In the UK, a good backdrop to growth has not translated into an improvement in the country’s fiscal position. For now, the government should focus on building a credible medium-term consolidation programme.
  • Japan’s imminent fiscal doom has been imminent for some time now. So why does the market not believe the hype?
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US

The fiscal response to the financial crisis was swift and effective in the US. Policy since has been hampered by political bickering, although the tone has improved recently.

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UK

Strong growth over the current fiscal year has yet to feed through into the public finances. A credible medium-term consolidation plan is required after the
next election.

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Europe

The Euro-zone has felt the full brunt of sovereign debt crises over recent years. While market pressure has cooled, structural reform remains key to debt sustainability.

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Japan

Japan’s fiscal dynamics are appalling. However, improving tax receipts and social security reforms may yet delay its day of reckoning.

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Emerging Markets

Emerging markets are usually an afterthought in discussions of global fiscal challenges. However, there are a variety of challenges that need close attention.

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Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

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