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Fitch expects 2013 dip in European govt borrowing


As austerity bites, ratings agency says borrowing will plummet

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Gross government borrowing for European sovereigns will be materially down over 2013 compared to this year's financing needs, according to Fitch Ratings, which estimates a drop of 6.6 percent to €1,765 billion from the 2012 figure of €1,890 billion.

In its latest research published this week, Fitch noted that gross borrowing in the Eurozone will be down 7 percent year-over-year to €1,428 billion, or 14.8 percent of GDP. In absolute terms, European government borrowing is largest in France (€337 billion), Italy (€333 billion), the UK (€277 billion or £225 billion) and Germany (€233 billion).

As a share of GDP, it is largest in Cyprus (28 percent), Greece (23 percent), Italy (21 percent), Spain (19 percent) and Portugal (19 percent). Overall, gross borrowing has fallen in year-over-year terms for the majority of European governments, with Estonia, Ireland, Luxembourg, Malta and Switzerland showing modest increases relative to GDP.

With the UK now also on negative rating outlook for Fitch Ratings, since March, nearly 74 percent of the EU15 gross borrowing requirement for 2013 is by governments with a sovereign rating which is on a negative outlook or watch.

This is a significant increase on the 59 percent for 2012. Furthermore, Fitch notes that this is in marked contrast to the beginning of 2009, where all €2 trillion of sovereign debt issuance was from governments on a stable rating outlook.

Contrasting this, the marginal cost of funding for European governments has fallen significantly as core Eurozone sovereigns have benefitted from safe haven flows. The improved market sentiment that has followed the ECB's Outright Monetary Transactions (OMT) announcement means that nearly all governments in the region currently face lower yields compared with a year ago.

Europe as a whole, on an annual average basis, faced yields of 3.3 percent in 2012, down from 3.9 percent in 2011. Commenting on the findings, Douglas Renwick, Senior Director in Fitch's sovereign team, said, "Fiscal tightening is delivering results in spite of the macroeconomic headwinds. Central government net borrowing estimates for 2013 indicate an impressive 13 percent reduction on 2012 levels."

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Fitch expects 2013 dip in European govt borrowing
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