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Global fiscal deficit narrows to 6.5% of GDP in Q3 from 20.4% in Q2

Niti Kiran     December 15, 2020

Global fiscal deficit narrowed to 6.5 per cent of GDP in the third quarter of 2020 from 20.4 per cent in the previous quarter. In absolute terms, it came down to $1.2 trillion from $3.2 trillion, during the period, highlighted a Motilal Oswal Institutional Equities report. In advanced economies (AEs), the fiscal deficit narrowed to 6.9 per cent of GDP after climbing to 27.6 per cent in Q2CY20.

For emerging & developing economies (E& DEs) excluding China, fiscal deficit stood at 6.7 per cent of GDP in Q3, the second-highest in the past two decades, after reaching 12.4 per cent of GDP in Q2.

South Korea, Taiwan, Mexico, and Thailand posted a fiscal surplus in Q3CY20, the report added. In fact, Taiwan has been the only nation to report fiscal surplus over the past three quarters (2.6 per cent of GDP). Hong Kong reported the highest fiscal deficit at 24.5 per cent of GDP followed by 19 per cent in South Africa.

"Overall, such substantial differences in fiscal support among AEs and E&DEs confirm the ability and willingness of the different governments. Eventually, these differences may play a pivotal role in determining the fate of economic recovery in the short term," said the report.

The global fiscal spending grew 22.7 per cent, year-on-year, coming in at 25.1 per cent of GDP, in the third quarter following a 50.3 per cent year-on growth in the preceding period. Fiscal spending in AEs grew 35.3 per cent, while it grew around 8 per cent in E&DEs and approximately 10 per cent, excluding China. While government spending increased in all AEs, it declined in four E&DEs, with the highest decline (of 13.5 per cent) witnessed in India, the report added.

Receipts also grew 7.4 per cent, on a yearly basis, following the worst contraction of 22.2 per cent in Q2. Strong growth of 36 per cent in the US (on account of postponed deadlines for individual and corporate tax payments from April and June to July 2020) resulted in the growth of 16 per cent in government receipts in AEs. On the other hand, receipts shrank 13 per cent in E&DEs ex-China, but grew 4.7 per cent, year-on-year, in China in Q3CY20. "The worst contraction in fiscal receipts continued in Malaysia (-32.5 per cent), followed by Russia and India (at nearly 25 per cent each)," it added.

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