MARKET ANALYSIS
GOVERNMENT SPENDING
Government spending is inclusive of all government consumption and investment but exclusive of transfer payments and can be financed by government borrowing or taxes.
In the US, government spending occurs over several tiers including primary federal, state and local. In the UK local government spending is the responsibility of local authorities, under the supervision of the national government.
Government deficit spending is advocated as part of the fiscal policy response to a recession. It is thought to raise aggregate demand and increase consumption which in turn leads to greater production and an increase in GDP.
However, a counter argument states that government spending can exacerbate the problem by shifting resources from the perceived more productive private sector.
Government consumption, consisting of final consumption expenditure and gross capital formation is one component when equating a country’s GDP and therefore can be an important factor for spread betters to consider when trading the markets.
BUDGET BALANCE
Country
Type
Government Spending
Announced
Monthly/Quarterly
Description
This is a process where total revenues are equal to or greater than total expenses and is referred to as the position of the country’s current account.
The current account shows how a country deals with the global economy on a non-investment basis thus showing strengths & weaknesses in a country's economy and therefore helps to achieve balanced economic growth.
A positive current account balance occurs when inflows from its components into the country exceed outflows of the capital leaving the country.
Current account surplus may strengthen the demand for local currency. Persistent deficit may lead to a depreciation of a currency.
Different economies have different mechanisms to display what state their current account is in. In the UK the public sector net borrowing figure shows the difference between spending and income for public corporations in the previous month. A positive number reveals a budget deficit whilst a negative shows a surplus.
Current account figures from Europe and Japan display the actual position the balance of payments is in and are directly liked to currency demand. A rising surplus leads to increased demand and a strengthening of local currency.
