Most DMs Set For Fiscal Tightening But Some Risk Of Easing [2/2]

[The below is taken from the MNI Macro Deep Dive, focusing on potential fiscal impulse in an election-heavy year. See the full report here].

Following the chart in part 1:

• US: Fiscal projections are based on the Feb’24 CBO baseline and the latest Treasury monthly statement, adjusted for IMF staff’s policy and macroeconomic assumptions. Projections incorporate the effects of the Fiscal Responsibility Act but risks of additional spending remain, evidenced by the House finally approving $95bn (0.34% GDP) in foreign aid for Ukraine, Israel and other US allies on Saturday.
• Aus/NZ differences: NZ’s fiscal position is not as robust as Australia’s; it had been running lower deficits in 2019 and during the Covid pandemic but Australia saw a rapid commodity price-driven improvement in 2022. Both Treasuries forecast a 2pp difference in the budget deficit for the current financial year but there is considerable uncertainty with budgets due May 14 for Australia and May 30 for NZ. NZ had a change of government last October from Labour to a centre-right coalition, which has promised tax cuts to be financed through spending reductions - this will be their first budget. Australia meanwhile faces a general election in 2025 which risks larger easing with next month’s budget.
• Canada: Seen with the largest easing over the two-year window of all advanced economies, and this is based off the government’s 2023 Fall Economic Statement from Nov’23 plus IMF staff adjustments for economic developments since then. Released just last week, Budget 2024 opted to use all of its headroom from favourable economic and fiscal developments to instead launch large program spending. Outright fiscal deterioration was limited by optimistic assumptions for nominal GDP and tax receipts, leaving risk of greater fiscal easing than the IMF has above. More here.