US OUTLOOK/OPINION: Market Moves Give Powell Room To Say "Transitory" Again(2/2)

The central government cash balance in January saw a budget deficit of E17.3bln, a sizeable improvement from the E25.7bln in January 2024 and its smallest January deficit since 2018. 

• A E17bn deficit equates to 12% of the E139bn central government deficit forecast for 2025, a better start to the year than in Jan 2024 when it equated to 16.5% of the ultimately realized E156bn. It’s close to the 12% seen in 2023 and 10.5% in 2022.
• Translation to a general government basis is difficult so early in the fiscal year, particularly given there is uncertainty from ongoing negotiations around pension reform (France's pension-related expenditures are among the highest in the EU).
• Focusing on these central government data, roughly two thirds of the improvement came from lower total expenditure at E37.9bln (from E43.4bln in Jan 2024) with the remainder from higher revenue at E24.4bln (vs E20.8bln in Jan 2024).
• The year-on-year increase in revenue was driven by a rise in tax receipts (E23.6bln from E20.0bln in Jan 2024), whilst non-tax revenues were stable (unchanged at E0.5bln).
• All key sub-components of tax revenues increased over Jan 2024 values, especially other tax revenues at E6.1bln (vs E4.1bln in Jan 2024).
• The lower expenditure meanwhile was largely due to intervention expenses (only E5.3bln vs E11.3bln) although this appears a temporary improvement. The press release notes it was "due to the shift in certain payments for intervention expenditure borne by social ministries and the calendar of operating expenditure". For example, the housing access assistance "first payment is spread over the months of January and February 2025" whereas in January 2024 full payment was made.
• The balance of special accounts recorded a deficit of E3.8bln (vs E3.1bln in Jan 2024), this is mainly due to an allocation to pensions of E0.3bln (vs a inflow of E0.5bln from pensions in Jan 2024).
• Note INSEE’s total government estimate of the 2024 deficit is expected to be published on 27th March. Recall that last year’s central government deficit of E156bn (5.4% GDP) came in lower than latest estimates of 169bn but was still larger than the initially forecast E147bn. It narrowed from 6.1% GDP in 2023. 

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