Wednesday, February 1, 2012

Eurozone periphery deficits improve, but it's a tough road ahead

The latest Eurozone government deficit numbers are encouraging, but gains are not sustainable. As a percentage of GDP the periphery nations all improved except for Greece.

Central government deficit as percentage of GDP (source: Capital Economics)

Unfortunately the improvement may be fleeting as the GDP of these nations begins to decline, driven by austerity measures and tight credit conditions.  For example Portugal, who had the largest improvements in the deficit numbers, is showing negative GDP momentum for Q1-Q3.

Portugal GDP

The forecasts are pointing to a roughly 2.5% decline (annualized) in Q4 and a 3.5% decline this year.  That means that Portugal's government has to cut the budget deficit by 3.5% just to keep even with the 2011 numbers.

Portugal GDP forecast (Bloomberg)

It's going to be a long haul for these nations to get on a path of sustainable deficit reductions.

SoberLook.com