The US economic revival just (provisionally) around the corner

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The US economy yesterday offered a robust data that, at least temporarily, allowed closing the world’s largest economic downturn since the Second World War.

Budget deficits, 2001-2010, by EU region · Déficit presupuestario 2001-2010 por región UE (Source: Ronan Lyons Economic Analysis, Oct. 16, 2009)

American GDP growth in the third quarter was 3.5% after four consecutive quarters’ drops. The positive data was expected by analysts, but the strength of the US economy stunned – and pleased – the world stock markets and particularly the Dow Jones index, which rose above 2%. The turnaround from the Q2 (-0.4%) suggests that the incentive plans of the U.S. government, an interest rate of 0% practice, the takeoff of the upturn in private consumption and housing are sufficiently solids to undertake corrections in a few months which would put the economy outside the ICU. If so, we would not be far from a very modest increase in interest rates by the Federal Reserve, an assessment that, sooner or later, should be followed by the European Central Bank, especially if consolidating the growth in Germany and France. In the case of Spain, data also released yesterday show the fifth consecutive quarter of economic decline, although it is true that the deterioration has been moderating in the last three quarters we have moved from -1.9% (Q1) and -1.1% (Q2) to -0.4% in Q3. We are, according to the Bank of Spain, in an “incipient recovery” that entails a great deal of risks: the worst unemployment rates, intolerably increasing next to18.2%, deficit escalating close to 10% of GDP and an upward  lack of credit to businesses and individuals.According to the latest figures in relation to countries under the Excessive Deficit Procedure (EDP) of the European Commission, the general government deficit of the euro area lay at 6.1% of GDP in 2009.As a result, the EU-15 public debt the will increase as of 69.3% GDP in 2008 to 78.4% in 2009. By 2010, however, it is expected to further increase on average 6.6% of GDP.At disaggregated level, most euro area countries in 2009 recorded a deficit exceeding the 3% of GDP, while all euro zone countries will infringe the maximum allowable deficit in 2010, according to latest IMF estimates.

Thus deficit cuts jump out over 0.5% per year, mostly in countries with higher deficits.

And what are these countries? Ireland, Greece and Spain showed the highest euro area’s gap budget, both in 2009 and 2010. In particular, Ireland’s public deficit will reach a rate close to 13% of GDP, according to recent estimates. Greece exceeds 12%, while Spain recorded a deficit of 9.5%, along with the IMF.

In 2010, these three countries will continue to be leaders in fiscal imbalance: Ireland (13.3%), Spain (12.5%), while Greece will approach 10%, given its public accounts inaccuracy, only just admonished by the Eurogroup Chairman Jean-Claude Juncker.