Saturday 22 October 2016

The protacted Greek drama reaches a critical juncture

Reuters and Colm Kelpie

Published 01/06/2015 | 02:30

Greek Prime Minister Alexis Tsipras
Greek Prime Minister Alexis Tsipras

Years of uncertainty and economic pain spent keeping Greece in the Eurozone boils down this month to a handful of make-or-break debt repayments, while a raft of key data in the next few days will point to the progress of the global economy.

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The threat posed to the wider world by an eventual Greek exit from the euro may have diminished over the last few years, but last week the United States warned of an "accident" for the world economy if Greece and its creditors miss deadlines in the coming weeks to avert a debt default.

Most analysts think Greece has enough cash and options to avoid default when a roughly €300m payment falls due on Friday to the International Monetary Fund (IMF). What happens in the subsequent weeks is less clear.

"We believe meeting the €1.6bn in payments to the IMF by the end of June will be difficult. Payments of €3.5bn on bonds held by the European Central Bank (ECB) on July 20 appear even more unlikely," said Michael Gapen, economist at Barclays.

"Without an agreement, Greece could descend into what would effectively be an exit from the euro area, where defaults and capital controls become a permanent feature."

Gauging the likelihood of a substantive agreement is difficult because of a clear difference in tone between Athens, optimistic of striking a deal soon, and its far more cautious creditors.

Greece's left-wing government - elected in January to fight austerity measures imposed by its international lenders -indicated at the weekend it could compromise on some of its demands, although it didn't specify how.

"The antipathy towards more austerity with the general public and (Greek governing party) Syriza is a major sticking point and means a quick resolution is unlikely if it means Greece has to capitulate," said Ben May, economist at Oxford Economics.

Still, analysts polled by Reuters last week put a less than one-in-three chance on Greece leaving the Eurozone this year.

Mark Zandi, chief economist at Moody's Analytics, believes that the global economy is now "largely inoculated" from Greece because European banks - the main channel of contagion - are in better shape than they were a few years ago.

Instead, a protracted slowdown in China, along with how financial markets respond to the US Federal Reserve's intention to raise interest rates from record low levels, are Mr Zandi's top worries for the world economy going into the second half of this year.

Business surveys this week will show if there are any signs that China's vast industrial sector will shake off its recent stagnation.

"My working assumption is that the Chinese are going to be able to gracefully manage their slowdown. But if they stumble too much, that'll make it more difficult for the global economy to kick into a higher gear for sure, including the US economy," said Mr Zandi.

The US - the world's largest economy - contracted in the first three months of the year as it buckled under the weight of unusually heavy snowfalls, but most economists think a rebound is already under way.

Purchasing managers indices from the United States this week should go a long way to confirming that, but even more important will be labour market data due on Friday as the Federal Reserve gauges when to raise interest rates.

At home, it's also expected to be a busy week on the economic front. The monthly manufacturing and services Purchasing Managers Indices are expected to be published for May, and the Department of Finance will also publish Exchequer Returns for the first five months of the year.

The focus on the latter will be on whether the tax returns for far this year continue to run ahead of target. There is no reason to think otherwise at this point, and analysts believe there will be little change to that trend.

The latest Live Register details will also be published by the Central Statistics Office on Friday.

Alan McQuaid of Merrion Stockbrokers believes the unemployment rate will continue to fall.

"The unemployment rate remains the key indicator as far as the economy is concerned and significant progress is being made in terms of bringing it down," he said. "Assuming the economy continues to grow strongly in 2015, as we expect, an average jobless rate of 9.5pc is envisaged for this year.

Irish Independent

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