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Forex Flash: US Budget Deficit shrinks - Fidelity

FXstreet.com (Barcelona) - Trevor Greetham, Asset Allocation Director at Fidelity Worldwide Investment notes that according to new Congressional Budget Office forecasts the U.S. budget deficit will shrink to $642 billion this year.

At 4.0 percent of gross domestic product this is down sharply from the 2009 shortfall of 10.1 percent of GDP. The CBO expects to deficit to fall to 2.1 percent of GDP by 2015 as revenues are projected to rise more rapidly than spending. In comparison, the Office for Budget Responsibility expects a UK budget deficit on a Maastricht Treaty basis of 7.6 percent this year declining only gradually to reach 2.7 percent of GDP by 2017.

Commenting on the relative success of U.S. fiscal strategy, Greetham writes, “The anti-austerity camp will get a boost today. It is increasingly clear that the Obama administration was right to put off fiscal tightening and focus reforms on the medium to long term. America is growing its way out of debt. The deficit is shrinking because tax revenues are coming in better than expected and a rise in house prices has seen the two government sponsored lenders, Fannie Mae and Freddie Mac, repay some $95 billion to the Treasury.”

He adds, “The good U.S. fiscal performance stands in stark contrast to the UK where front-loaded spending cuts and tax rises have hurt the economy and caused a shortfall in government revenues. The OBR expects the deficit to shrink to a manageable level by 2017 but this forecast, like all of the previous ones, relies on sustained economic expansion of 2 to 3 percent a year. It is hard to believe this level of growth will be achieved especially as next month will see another year of cuts tacked on the end of what has become a rolling five year austerity plan.”

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