It seems that fiscal restraint will be the order of the day for governments globally in 2011.
According to a new report from RBC which polled some of the world’s top business leaders, many expect that governments will cut existing spending, rather than raising taxes- as a way of reining in swelling national deficits around the globe. The days of financial stimulus have had the desired effect in most locations, and now it is time to work on chopping away at existing national debt.
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Read More From the 461 finance and global business leaders surveyed, 46% from around the world reported that their own respective country’s external debt was increasing at a level that would soon be unsustainable.
60 %of U.S. and UK respondents believe the same to be correct about their government's debt. Pessimism is the predominant fiscal attitude in Europe. Respondents from the UK and most of the eurozone, such as Portugal, Ireland, Italy, Greece and Spain were among the least hopeful about their national debt. Canadian respondents, on the other hand, were decidedly more optimistic
The intention of this survey was to measure “the sentiment of global executives at a crucial time when global imbalances between the developed and developing world are producing diverging outcomes in economic prospects and fiscal and monetary policies.”
Examining the national debt picture a little more closely- and looking at strategies to reduce it, executives largely felt (49%), that the debt would be reduced mostly by government spending cuts. 30% indicated that they believed that their respective governments would raise taxes to cut national debt.
"The debt that hangs over individual countries is casting a long shadow in the minds of corporate executives and investors," said Marc Harris, co-head, Global Research, RBC Capital Markets. "The results of the RBC study are a clear call to action by the world's business leaders."
With much of national debt in need of refinancing in the near future, many executives fear that their governments will suffer from a funding shortfall; 12% felt that they would not be able to cover the shortfall at all; 36% felt that the funding shortfall would be covered, but with some difficulty; 34% felt that their governments would be able to fund the shortfall without difficulty.
“Fiscal austerity measures are a concern for global executives anxious that a persistent downward spiral of higher levels of debt will lead to slower growth, a further withdrawal of assets and more losses on bank balance sheets, said Richard E. Talbot, co-head, Global Research, RBC Capital Markets. "Even in countries that are less severely affected by sovereign debt problems, almost all respondents believe that governments will have some problems financing themselves, particularly when the scale of debt that is maturing over the next year is taken into account."
Looking at the possibilities for inflation in the near future, a staggering 84% expect inflation to increase in their domestic markets. Breaking down the cause, 39 % think it is because of too much monetary stimulus, 34 % attribute it to higher import prices (including commodities) and 20 % blame excessive fiscal stimulus.
The report covered topics like government debt, inflation risk and interest rates, trade policies and other government actions.