LEAVING PLENTY OF ROOM FOR MORE "AUSTERITY":

So which economy in the world is "suffering" most from austerity? As Capital Economics notes, the combination of US tax hikes and spending cuts means that over the next two years the federal budget deficit is expected to fall by 3.6 percentage points as a share of GDP (3.2 percentage points if you add state and local government).

Credit: Capital Economics

As the above chart shows, the forecasted decline will be bigger than the expected falls in Europe. So why is US growth expected to continue to be OK, while EU is suffering a long recession? Capital Economics:

The big difference, though, is that activity in the private sector in the US is growing by more than in Europe. This explains why US GDP rose at an annualised rate of 2.5% in the first quarter (we think it will eventually be revised up to 2.9%) while euro-zone GDP contracted at an annualised rate of 0.9%.

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