Fiscal policy is restrained now

The average primary balance in advanced economies improved by 3.4 percentage points in 2022—for a cumulative improvement of 6.2 percentage points since 2020 (Figure 1.4, panel 1). The cyclically adjusted primary balance in these economies improved by 2.1 percentage points, on average, in 2022 (Figure 1.6). Even so, the average primary deficit as a share of GDP remained about 1.3 percentage points above prepandemic levels. These averages conceal important differences across countries, however. Fiscal tightening was significant in the United States, with a 4.6 percentage point decline in its cyclically adjusted primary balance in 2022 alone, reflecting the economic recovery from the pandemic. With rebounding private activity and households drawing on excess savings built up during the pandemic, overall demand weathered the withdrawal of governments’ support. The improvements in the cyclically adjusted primary balance in the euro area and the United Kingdom were smaller at 0.5 and 1.8 percentage point each, because further support measures were taken in response to a deterioration of the terms of trade stemming from Russia’s invasion of Ukraine. Japan announced a series of fiscal packages throughout the year, including measures to mitigate the deterioration in the cost of living. Other economies in Asia (Hong Kong SAR, Korea) also loosened their fiscal stances in 2022. The average debt-to-GDP ratio in advanced economies shed 10 percentage points between the end of 2020 and the end of 2022, thanks to favorable contributions from growth and inflation surprises. Nevertheless, the average current public-debt-to-GDP ratio of about 113 percent of GDP stands above its prepandemic levels. Over the medium term, fiscal tightening is projected to moderate or abate among advanced economies as a group. Under current projections for higher interest payments and lackluster growth, public debt would rise to about 118 percent of GDP over the medium term. Countries facing mounting pressures to engage in age-related spending (Japan), those contemplating further increases in public wages and other social spending (United Kingdom), and those expanding tax incentives, grants, and other fiscal measures to promote a transition to clean energy (United States) have steeper upward trajectories.