MARKET ANALYSIS

GOVERNMENT SPENDING

Overview

Government spending is a major component of fiscal policy and can stimulate or restrain economic growth. It includes expenditures on infrastructure, defence, education, and social programs. Government spending influences economic activity, employment, and inflation, playing a crucial role in managing economic cycles.

Key Metrics

  • Federal Budget: The government's plan for revenue and spending. It outlines priorities and allocates funds to various sectors.
  • Public Expenditure: Total government spending on goods and services. It includes capital investments and current expenditures.
  • Budget Deficit/Surplus: The difference between government revenues and expenditures. A deficit indicates spending exceeds revenue, while a surplus indicates the opposite.

Implications

  • Economic Activity: Increased government spending can boost economic activity, especially during downturns. It can create jobs, stimulate demand, and support growth.
  • Fiscal Policy: Governments may adjust spending to manage economic cycles, aiming to stimulate growth or control inflation. During recessions, higher spending can support recovery, while during booms, reduced spending can prevent overheating.
  • Debt Levels: Persistent deficits lead to higher public debt, which can impact future fiscal flexibility and economic stability.

Factors Influencing Government Spending

  • Economic Conditions: Governments increase spending during recessions to stimulate growth and cut back during expansions to control inflation.
  • Political Priorities: Different administrations prioritise various sectors, influencing spending patterns.
  • Revenue Collection: Tax policies and revenue collection efficiency impact the amount available for public spending.
  • Social Needs: Demographic changes and social needs, such as healthcare and education, influence government spending decisions.

BUDGET BALANCE

Country
Spreadex financial spread betting major economies image

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.