GLOBAL MACRO: UK & Germany Highlight A Mixed Outlook For DM Fiscal Policy [2/2]
- This mild outlook for changes in Developed Markets’ fiscal policy over the next two years masks some larger changes by country.
- Of the larger countries at either end of the spectrum, UK fiscal policy is expected to tighten by a cumulative 1.6pps over the next two years (0.9pp in 2026 and 0.7pp in 2027) in contrast to German fiscal policy easing 2pps (1pp in each year).
- UK Chancellor Reeves yesterday warned that those with broadest shoulders should pay a fair share of tax ahead of the autumn budget.
- Staying with a European perspective, the Euro Area is seen easing by 0.2pp in both 2026 and 2027, driven by that German easing. Elsewhere, France is seen easing 0.2pp in 2026 and 0.1pp in 2027 (and we suspect risks are to the easier side as PM Lecornu seeks coalition support*) after a 0.6pp tightening in 2025. Sizeable offsets to German easing come from Italy tightening 0.5pp in 2026 and 0.2pp in 2027 and Spain tightening 0.3pp and 0.4pp.
- As for other major economies, the US could see some modest tightening of 0.3pp in 2026 before a loosening 0.1pp in 2027, for a minor net tightening from what’s estimated to have been a neutral 2025.
Japan meanwhile goes against this, seen easing by a solid 0.5pp before a more neutral 0.1pp in 2027. That 2026 easing could be a reasonable tailwind after tightening 0.2pp in 2025 and 0.9pp in 2024.
* The IMF estimates for France were “based on the 2025 budget and other clearly specified measures in the authorities’ 2023-27 multiannual budget programming bill and fiscal plans”. The 2025 budget contained ~E50bn of consolidation measures vs Lecornu targeting E31bn. This forecast cut-off caveat also applies to Italy, where it won’t capture the cabinet approving the draft budget for sending to the EU three days ago. “The IMF staff’s estimates and projections are informed by the fiscal plans included in the government’s Medium-Term Fiscal–Structural Plan 2025–29 and the updated national accounts.”
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IMF: NY Post-Bessent Chief Of Staff Set To Become Seniormost US Off. At IMF
The New York Post reports that, according to its sources, US Treasury Secretary Scott Bessent's chief of staff, Dan Katz, is set to leave the administration to take up the post of first deputy managing director of the International Monetary Fund (IMF). Speaking on the sidelines of the IMF and World Bank spring meetings in Washington, D.C., earlier this year, Bessent criticised both organisations, claiming that “mission creep has knocked these institutions off course".
- Bessent argued the IMF has the mission of "promoting global monetary cooperation and financial stability", but instead is focused on progressive social issues. Bessent: "The IMF and World Bank serve critical roles in the international system. And the Trump Administration is eager to work with them — so long as they can stay true to their missions.”
- If appointed, Katz would become the seniormost US official at the IMF, second only to Managing Director Kristalina Georgieva. Historically, the IMF has always been led by a European, while an American has served as president of the World Bank, although this is not a formalised split. The appointment of a senior Trump administration figure to such an influential role at the IMF would draw attention towards the global lender of last resort.
EUR: EURCAD hits a fresh 16yrs High
- Just a 19 pips swing for now in the USDCAD, initially fell but remains fairly close to where it trading at pre decision.
- The one to watch is the EURCAD that did managed a new 16yrs high, highest since July 2009.
- Immediate resistance is still right here at 1.6330, this was the June and July 2009 highs.
(Chart source: MNI/Bloomberg Finance LP).
BOC: Statement Comparison - Sept 2025 Vs July 2025
A comparison of September's rate announcement vs prior (July) in link below:
