EUROPEAN FISCAL: Austria Expected To Exceed EDP Limit Again This Year
The Austrian fiscal council sees the federal budget deficit at 4.4% of GDP in 2025 before narrowing to a still large 4.1% GDP in 2026 - see the full pdf here. This would represent a moderation from 4.7% GDP in 2024 but remains well above the 3% EU excessive deficit procedure threshold. Austria looks unlikely to avoid going into EDP although could avoid more penal sanctions.
- "The significant deterioration in the budget outlook compared to the FISK autumn forecast is due to the sharp increase in government spending in 2024 (deficit in 2024 amounted to 4.7% of GDP), but also to lower revenue due to the ongoing recession in 2025 and the decline in the expected economic growth for 2026."
- "In order not to exceed the 3% deficit limit and thus avoid the initiation of an excessive deficit procedure in 2025, an additional consolidation volume of EUR 8.5 billion is required in addition to the EUR 4.2 billion already covered by measures."
- Austria is currently not in EDP after a 2023 deficit of 2.6% GDP, although having dropped a specific target to avoid EDP in a coalition agreement earlier this year, it looks increasingly likely to join a list that currently has Belgium, France, Hungary, Italy, Malta, Poland, Romania and Slovakia.
- Bloomberg on Mar 31 summarised FM Marterbauer as saying Austria won’t be able to avoid being reprimanded by the European Union for running an outsized deficit as last year’s economic developments were worse than feared.
However, when it comes to more penal measures, we wrote on April 3 following 2024 deficit data here that "a hefty fine from the EC is likely to be avoided despite the 2025 deficit being expected to exceed the 3% limit again as long as Austria continues to be seen to be negotiating in good faith". We would judge this to still be the case.
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SEK: SEK Weakness Narrows Gap To 0.9500 In NOKSEK
The November 2020 low at 0.9274 capped downside in NOKSEK last week, before the stronger-than-expected Norwegian CPI report drove a 1.25% rally in the cross on Monday. Today’s 0.7% increase in NOKSEK has been led by the SEK leg, with USDSEK and EURSEK also extending higher at typing.
- This helps narrow the gap to 0.9500, previously a key multi-year support which was breached on March 3. This level coincides closely with the 20-day EMA at 0.9496, clearance of which will be required to signal a reversal to the upside. Shallower rallies will be considered corrective in nature.
- We haven’t seen an obvious fundamental driver for today’s krona weakness. European equities are up 1.5% at typing (with the OMX30 also up 0.6%), and while this morning’s unemployment claims rate data suggest labour market conditions remain soft, it didn’t point to an accelerating pace of deterioration.
- Given the extent of SEK strength since the start of February, participants may be happy to take krona risk off the table ahead of today’s US CPI data, and next week’s Riksbank decision.
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FOREX: GBP Outperforming, Attention on US Election Highs for Cable
- Despite some moderate outperformance for the greenback on Wednesday, GBP’s relative strength against G10 peers is standing out as we approach the US data, with cable consolidating close to its recovery highs of 1.2966. This leaves the pair within 50 pips of the psychological 1.3000 mark, and places growing attention on the US election (Nov 06) high at 1.3048, an important technical point on the chart. Moving average studies are highlighting a dominant uptrend.
- Goldman Sachs think GBP-outperformance last week was mainly a function of the currency’s relative resilience to tariff risks, and they think that can continue to support Sterling versus other European currencies as EU tariffs come into reality.
- Separately, Rabobank said the combination of this week’s release of monthly January UK GDP data and political bickering about the welfare budget will serve as a reminder of both the poor growth backdrop and tight fiscal position. They expect EUR/GBP to hold around the 0.84 area in the weeks ahead.
- Aside from the monthly activity print on Friday, we remain unlikely to hear anything from the Bank of England’s MPC (as we have entered the blackout period).
