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German budget – no sign of pre-election slippage.
The 2009 draft budget, presented 1st July, came in on the tight side, compared with what could have been expected in an election year.
Additional spending demands - notably from the environment, transport and economics ministries - have been widely deflected, allowing a reduction of the federal deficit by 0.1% of GDP to 0.4%.
Including budgets of local authorities and social insurance the general government deficit can be expected at €9 bn (0.3% of GDP) compared to €3 bn this year.
On a structural basis the budget draft implies fiscal tightening by 0.3% of GDP, leaving some room for tax cuts to counter cyclical weakness without endangering the overall objective to a balanced budget by 2011.
Asset conclusions: positive for German fixed income assets, implying a widening of intra EMU yield spreads. Also euro-positive, slightly negative for stocks.