Crunch time for Greece; US and Chinese data in focus

1 Jun 2015 | Author: | No comments yet »

Crunch time for Greece as debt repayment deadline looms.

LONDON — Years of uncertainty and economic pain spent on keeping Greece in the eurozone will boil 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 global economy’s progress. Kristian Rouz — As the US Fed is preparing for further tightening of their monetary policies, emboldened by solid preliminary estimates of the economic expansion in Q2, the foremost direct consequence of America’s return to ‘normality’ — a more expensive dollar liquidity — is bearing devastating spillover effects for the rest of world.

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 US warned of an “accident” for the world economy if Greece and its creditors miss deadlines this coming month to avert a debt default. The Eurozone, despite the pickup in the real economy and favorable financial situation, is vulnerable to the risks stemming from the debt crisis in Greece.

Most analysts think Greece has enough cash and options to avoid default when a roughly €300 million (S$444 million) payment falls due on Friday to the International Monetary Fund (IMF). Meanwhile, mainland China, mired in an uncontrollable economic slowdown, is balancing between bubbles in real estate and shadow banking and the necessity to implement a full-scale stimulus. What happens in the subsequent weeks is less clear. “We believe meeting the €1.6 billion in payments to the IMF by the end of June will be difficult. A stronger dollar is a disrupting factor to international trade, most likely triggering its further regionalization, leaving founding members of the TTIP and TPP treaties the only significant partners for America’s trade. Greece’s left-wing government indicated at the weekend that it could compromise on some of its demands, though it did not 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 Mr Ben May, an economist at Oxford Economics.

That said, while the situation in the global economy is now more or less corresponding to the concept of a post-crisis recovery, it will start to change dramatically in the second half of the year. At the same time, commodities are cheap, resulting in economic turbulence in most developing nations, forced to increase volumes in commodity exports in attempts to support the exhausting influx of hard currencies. All of this means that a large part of the global recovery is based on international trade, which in turn is denominated (more often than not) in US dollars. For example, American non-farm payrolls rose some 225,000 in May, a very optimistic development, while unemployment is at historic lows and inflation is accelerating gradually.

The coming tightening will inevitably push the US dollar up against other currencies, impairing the developing nations’ ability to import machinery, technologies, consumer goods and other development-related items of international trade. Comments from ECB president Mario Draghi after Thursday’s policy meeting will be scrutinised for the central bank’s latest views on the economic outlook and the Greek crisis.

Fearful of a looming tumble in stocks and bonds from multi-year highs, global investors have increased the share of safe-haven cash in their portfolios to the highest levels in seven months, according to a Reuters poll of fund managers last week. “There is a lot of concern about the global growth outlook, and as much as people are welcoming better trends in the euro zone, they know it’s not going to be a locomotive for growth,” said Marc Ostwald, strategist at ADM Investor Services. In Europe, Greece and Ukraine are examples of heavily-indebted nations, suffering from both the lack of structural economic reforms and the unfavorable external situation. While both nations are working with the IMF and private entities to overcome their financial struggle, they still pose significant threats to European economic stability.

Greece is scheduled to pay 300 mln euros ($329 mln) to IMF on 5 June, which is likely to happen no matter the outcome of the current negotiations as the nation has enough funds at its disposal. A rife demand for US assets in anticipation of their appreciation after the actual hike will cause most European (non-euro area) and Asian capital markets to bleed dry of investment.

Here you can write a commentary on the recording "Crunch time for Greece; US and Chinese data in focus".

* Required fields
Twitter-news
Our partners
Follow us
Contact us
Our contacts

About this site