Budget deficits across the industrialised world will remain sky-high next year in spite of reduced spending on fiscal stimulus packages, the International Monetary Fund warned on Sunday.
It said the Group of 20 leading economies taken together would run a budget deficit of 6.5 per cent next year compared with 6.6 per cent in 2009.
The huge deficits owe more to weakness in the world’s big economies than to discretionary spending on stimulus packages, which is set to decline in 2010.
Staff at the US Federal Reserve estimate that the ideal interest rate for the US economy under current conditions is minus 5 per cent, according to an internal analysis prepared for its last policy meeting.
The IMF said on Sunday the UK deficit would rise from 9.8 per cent of gross domestic product this year to 10.9 per cent next, while the deficit in Japan would increase to 9.6 per cent of GDP. It predicted that the US deficit would inch lower, but to a still high 8.8 per cent of GDP.
The biggest deterioration would come in Germany, the IMF forecast, with the deficit jumping from 4.7 per cent of GDP to 6.1 per cent. The deficit will also move higher in France, to 6.5 per cent of GDP.
The IMF budget forecasts came after three days of meetings of world finance ministers and central bank governors in Washington.
In a statement, the Group of Seven industrialised nations said “some signs of stabilisation are emerging” in the world economy.
However, US and UK officials worry that continental European nations might backslide on the stimulus, while French and German officials fear the US and UK could backslide on regulation.
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