Monday, April 24, 2006

Interesting Points in Eurostat Report on GDP And Government Finances

Eurostat today released a report on nominal GDP and government finances for 2005. It contains many interesting facts.

First, it confirms what I have been reporting earlier with regards to the rapid expansion of government spending in the U.K. under "New Labour" leaders Tony Blair and Gordon Brown. My previous post only dealt with direct government purchases and how they have been expanding rapidly in recent years as a share of GDP. In this report, the two other forms of government spending, transfer payments and interest costs are also included. And it shows that total government spending rose from 40.9% of GDP in 2002 to 44.8% in 2005, a spending increase which in part have been financed by higher taxes and in part by a higher deficit.

By contrast, the Euro-zone saw its government spending to GDP ratio decline slightly, from 47.7% to 47.5%. The British advantage thus fell from 6.8%:points in 2002 to a mere 2.7%:points in 2005.

The two countries who in 2002 had the heaviest burden of government spending, Sweden and Denmark, saw some relief between 2002 and 2005. Government spending to GDP fell from 57.9% to 56.4% in Sweden and from 55.2% to 53.1% in Denmark. Because of this, Denmark have now lost its second place in the burden of government to France, where spending rose from 52.6% to 53.9%.

The lightest level of government spending can not surprisingly be found in the rapdily growing baltic states. Government spending relative to GDP in 2005 was 35.9% in Estonia, 36.2% in Latvia and 33.7% in Lithuania. Ireland have formally lower spending than Estonia and Latvia at 34.5%, but adjusted for the fact that some of Ireland's GDP is an accounting fiction created by tax planning multinational corporations, the baltics have lower spending.

Cyprus saw its burden of spending increase even more than the U.K., at 4.1%:points (from 40.6% to 44.7%), followed by Portugal with 3.5%:points (from 44.3% to 47.8%), Malta with 3.2%:points (from 44.3% to 47.5%) and Luxembourg with 2.9%:points (from 41.4% to 44.3%).

The biggest decline were noted in Slovakia with 6.5%:points (from 43.3% to 36.8%). Other big spending cutters include the Czech Republic at 3%:points (from 46.7% to 43.7%), Greece at 2.8%:points (from 49% to 46.2%) and Denmark at 2.1%.

Another noteworthy aspect in this report is the shift in relative economic weight in the Euro-zone. The relative importance of Germany have decreased significantly (From 29.6% of the total in 2002 to 28% in 2005), while the importance of Spain (From 10% to 11.3%), Greece ( From 2% to 2.25%) and Ireland ( From 1.8% to 2%) have increased.This shift from slow growing Germany to rapidly growing Spain, Greece and Ireland means that even if growth is unchanged in all individual countries, aggregate Euro-zone growth will accelerate.


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