Striking a balance

- "UK Chancellor of the Exchequer George Osborne’s first Budget did not disappoint the markets. The decline in the budget deficit over the course of the parliament was broadly as we had expected – a further 2% of GDP reduction, with the structural deficit falling to between 0% and 1% by the end of the forecast horizon."
- "The ratio of spending cuts to tax increases was roughly in line with the 80-20% rule of thumb outlined by the Conservatives ahead of the election. While half of the spending cuts announced this week have yet to be detailed (we must wait until the October Spending Review) the resolve of the Chancellor to make these cuts does not seem in doubt after this Budget. The rating agencies’ initial response has been positive, and we do not see a downgrade to the UK’s AAA sovereign rating following this Budget."
- "Market sentiment deteriorated once again this week, not because of the euro debt crisis per se, but because of a re-assessment of global growth prospects. This opens a downside risk to our already sub-consensus euro area GDP growth view. There was something of a warning in this week’s euro area business surveys. The rolling over of expectations balances probably heralds the peak in the economic sentiment cycle."
- "A key event this week will be the expiry of the first (and at EUR442bn the largest) of the ECB’s 12-month tenders. The rollover risk is low because of the coinciding full allotment tenders. The amount rolled-over will provide a good indication of the state of the banking sector (the lower the better)."
- "Also in this week’s Focus Europe we preview the German Presidential election and look at the worsening economic sentiment environment in France, imported inflation in the UK and euro area, and the latest events in Romania where the IMF’s 4th review has been delayed."
DeutscheBank Focus Europe 20100625