IMF Sees 2011 US Budget Deficit Of GDP At Highest 10.8% Of Developed Countries, Same As Ireland

The IMF has just released its latest "Fiscal Monitor" report which, not surprisingly, is as usual full of pretty charts that alas amount to pretty much nothing. What was surprising is the increasingly more antagonistic tone the IMF has taken with regard to the developed economies. In what could be a first, the IMF is starting to get increasingly realistic, and in the report notes that of all budget deficits in "selected countries", the US will hit the highest at 10.8%, the same as Ireland, and just ahead of Japan at 10%. And a direct stab at the US: "The United States needs to accelerate the adoption of credible measures to reduce debt ratios....Market concerns about sustainability remain subdued in the United States, but a further delay of action could be fiscally costly, with deficit increases exacerbated by rising yields." Other observations by the IMF: deficits in the Middle East could widen as governments increase subsidies to ease social tensions; higher food, fuel prices are likely to slow the pace of spending in emerging markets; US fiscal adjustments in 2012 are needed to put fiscal consolidation back on track. Oddly enough, the IMF which yesterday decided to trim GDP estimates very modestly even as it activated its SDR500 billion New Arrangements to Borrow line of credit, is Cottarelli's statement that the US still has a "lot of credibility." For now the rating agencies still seem to buy this load of BS.

And some other soundbites:

  • IMF'S COTTARELLI SAYS U.K. FISCAL ACTION ENTIRELY APPROPRIATE
  • IMF'S COTTARELLI SEES `A LOT OF UNCERTAINTY' IN JAPAN FISCAL
  • IMF'S COTTARELLI SAYS `CRITICAL' FOR JAPANESE TO CLARIFY PLANS
  • IMF'S MAURO SAYS HE WOULDN'T SAY SPAIN OUT OF THE WOODS

Look for more GDP cuts in the next several weeks, as Q3 GDP growth is cut to zero. And as we said before from Q3 to QE3 is only one phone call from Hatzius to Dudley away.

Some more from Bloomberg:

The U.S. is set to have the largest budget deficit of major developed economies this year and should narrow it now rather than face tough adjustments in the next two years, the International Monetary Fund said.

The U.S. shortfall will reach 10.8 percent of its gross domestic product this year, ahead of Japan and the U.K., the Washington-based IMF said in a report released today. It estimates that President Barack Obama will need to cut the deficit by 5 percentage points of GDP in the next two fiscal years, the largest adjustment in “at least half a century,” to meet his pledge of halving it by the end of his four-year term.

“Market concerns about sustainability remain subdued in the U.S., but a further delay of action could be fiscally costly, with deficit increases exacerbated by rising yields,” the IMF wrote in its Fiscal Monitor report, published several times a year to analyze public finance development.

The IMF recommended “a down payment” in the form of deficit reduction this year that would make the government goal “compatible with a less abrupt withdrawal of stimulus later.”

Obama is expected to announce long-term proposals for cutting the federal deficit tomorrow, following a budget deal he reached with congressional leaders last week that averted a government shutdown. In May, the government may be forced to increase the $14.3 trillion federal debt ceiling to ensure the U.S. will meet its financial obligations.

From the report:

Full report:

IMF Fiscal Monitor