Euro-Area Deficit Falls to Eight-Year Low as Prospects Brighten

  • Seasonally-adjusted 2Q budget shortfall at 1.5% of output
  • Government debt for the region falls to 91.2% of GDP

Budget deficits in the euro area narrowed to an eight-year low in the second quarter amid mounting signs that the economic recovery is gaining traction.

The euro area’s seasonally-adjusted budgetary shortfall fell to 1.5 percent of output compared with 2.1 percent in the same period a year ago, the European Union’s statistics agency said in a release on Monday. That is the smallest shortfall since early 2008.

Having contended with bank bailouts, recessions and a sovereign debt crisis, European authorities hope to return to tighter budget discipline as prospects for growth improve. Under European Union rules, nations are supposed to keep their debt ratios below 60 percent of output and limit deficits to 3 percent. Yet the 19-country bloc’s deficit to output ratio hit a peak of 7 percent in 2010.

Total government debt in the euro area declined to 91.2 percent in the second quarter compared to the same period a year ago, when it stood at 92.1 percent of output, Eurostat said in a separate report. Compared with a year ago, 13 countries recorded an increase in their debt to gross domestic product ratio in the period, while 15 experienced a decrease. The highest increases in the ratio were in Greece, Latvia, Portugal, Poland and Lithuania, the data showed.

The currency bloc’s recovery has continued at a steady if slow pace in the face of headwinds ranging from the U.K.’s vote to leave the European Union, slowing global trade and political uncertainty fueled by an upsurge of populist movements. Purchasing Managers’ Index for manufacturing and services data published on Monday showed momentum in October accelerated to the fastest pace this year.

The European Central Bank is supporting the economy with unprecedented stimulus that will come under review in December, three months before quantitative easing is currently set to expire.

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