Macro series - Global Letter - Fiscal monetary mix - Countries in aggregate risk tightenin

Whereas in 2020 the general government fiscal balance of the G20 economies taken together supported aggregate demand to the tune of 8.8% of GDP, support this year is likely, the IMF estimates, to have fallen back to 7.9% and, on present budgetary plans, to fall further next year, to 5.9%.1 These figures represent the sum of two effects: 1. [...] A ‘discretionary’ part, (the effect of the budget on the economy) that reflects the extent that governments choose to go beyond the automatic effects, and change the balance between income and expenditure. [...] What the numbers say The IMF estimates that discretionary fiscal policy will tighten in the G20 economies by around 0.8% of GDP this year, and 2.1% next year (see the table). [...] Amongst the G7 economies individually, only the US looks likely to be cautious about its fiscal tightening in 2022 – although the figure in the table below was calculated on the assumption that the full Biden package would be enacted – which looks unlikely. [...] Now the risk is of a compounding of that mistake with joint fiscal and monetary policy tightening that could add up to too much demand being withdrawn too soon.2 It may be that this time the recovery is somewhat better established than it was in 2010 following the financial crash of 2008.