Italian budget deficit down towards 2%

Falling deficits in general in the Eurozone due to the growth rate of GDP combined and the countercyclical tax structure.

Aggregate demand from non government credit expansion (and some from exports) is supporting GDP as support from government deficit spending wanes. This can go on for quite a while as consumer leverage still has a lot of upside potential. However, it will self-destruct if allowed to continue long enough. And, as in the US, net exports have the potential to sustain growth in the medium term as well, though this is hard to fathom without a fall in the Euro.

I need to do more work on this as there are a lot of moving parts over there, including prospective members targeting their currencies, building Euro reserves (public and private), and tightening their fiscal balances. Additionally, portfolios have been rebalancing toward the Euro.

Overall, however, we enter 2008 with tightening fiscal balances in most countries. This will serve to keep a lid on demand and output, while rising food/energy will keep upward pressure on prices.

Italy’s 2007 public deficit about 2 pct of GDP

Prodi 27 Dec 2007 06:39 AM ET
Thomson Financial

Italy’s public deficit will be about 2 pct of GDP, compared with a government forecast of 2.5 pct, said prime minister Romano Prodi in his year-end address.

“We will close the year with a lower deficit, it will be around 2 pct, a figure below any forecast,” Prodi said.

philip.webster@thomson.com pw/ejb COPYRIGHT Copyright Thomson
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