Group Economics
Global Macro View
Macro & Financial Markets Research
Greek shadow to lift
Nick Kounis +31 20 343 5616
25 June 2015 Greece has been dominating financial markets over recent weeks reflecting worries about a default and euro exit. Although there is still work to do, the chances of a deal look to have improved. With Greek exit risks starting to ease – at least for now investors should start to focus on economic fundamentals. And here is the good news. They are improving. Indeed, if the situation with Greece calms down, we think there is every chance we will see a synchronised acceleration in the growth of the world’s three biggest economies over coming quarters.
Greece dominating financial markets
deal with its creditors, so in a few months’ time we could be
It might only account for 0.4% of world GDP, but Greece has
back in the same situation. In addition, the Greek banking
been front of mind for investors over the last few weeks. The
system looks vulnerable. Deposit withdrawal looks to have
breakdown of talks between the Greek delegation and the
continued at a blistering pace this week. We estimate that over
institutions and inflammatory rhetoric by Greek Prime Minister
EUR 10bn has been taken out of the banks so far this month
Tsipras the weekend before last raised worries about a Greek
(see chart), while another EUR 5 – 10 bn could leave given the
default and euro exit. There was a risk that the financial stress
most recent developments. The big question is whether the
and uncertainty would start to hurt confidence indicators.
Greek government and European leaders have done enough to restore confidence and stem the flow. The risk is that if
Stepping out of the Greek crisis shadow
deposit flight accelerates, the authorities will have no choice
Fortunately, the risk of a Greek default and euro exit has
but to implement deposit and capital controls. That could make
eased. The prospects for a deal on Greece this week have
the economic and fiscal situation worse and complicate talks.
improved following a new plan presented by the Greek government, which makes some important concessions. The
What if Greece does exit
Greek authorities and the institutions would now get into the
The lingering exit risk raises the question what a Greek euro
specifics of the proposals, including ‘doing the calculations’ as
exit would mean for the eurozone economy. There would most
well as agreeing on a list of ‘prior actions’ needed to be carried
likely be more financial stress, with peripheral government
out to unlock funds. So it is certainly not a ‘done deal’ though
bonds and other Southern European assets leading the
prospects look to have brightened considerably.
decline. However, it may not last long. Indeed, one could ask what investors are really afraid of. The Greek exposures of the
Greece bank deposit flight intensifying
rest of the eurozone are much less than in the past. Investor
Households and companies, EUR bn*
worries probably reflect the risk of an unravelling of the
240
eurozone, but other countries are unlikely to follow. So there
220
would seem little logical reason for enormous sustained stress.
200
European banks’ exposure to Greece
180
EUR bn
160 140
140
120
120
100
100 04
05
06
07
08
09
10
11
12
13
14
15
80 60 40
Source: Thomson Reuters Datastream, ABN AMRO Group Economics *May and June (up to Monday) data are estimates based on reports
20 0 11Q1
Not out of the woods yet Our base scenario is that Greece will remain in the euro, but a euro exit scenario still cannot be consigned to history despite the recent progress. Greece still needs to reach a longer-term
Public sector
12Q1
13Q1 Banks
14Q1
Non-bank private sector
Source: BIS, ABN AMRO Group Economics
2
Global Macro View - Greek shadow to lift - 25 June 2015
In addition if necessary, policymakers have the tools to
quarter, which is moderate by international standards but
intervene. In the case that Greek exit risks rise sharply, the
above the economy’s trend rate. There was good news in the
ECB would activate the OMT, and buy large quantities of
composition of growth. Both consumer spending and fixed
stressed government bonds. This should push down sovereign
investment strengthened last quarter, which bodes well for the
bond spreads again and generally support financial markets.
sustainability of growth. Looking forward, we think there are
Calm would eventually be restored, though significant
three powerful factors that will support demand. First, the lower
economic damage would be done in the meantime. However, if
oil prices. Second the decline in the euro. Finally, easing
calm returns relatively quickly the economy should eventually
financial conditions more widely. Bank loans are becoming
regain its footing.
more available and cheaper. This is now also the case for SMEs, good for 70% of eurozone employment. Recent
How a Grexit could be worse
consumer and business surveys suggest that the eurozone
Still, there are significant risks. A Greek exit could undermine
economy has proved to be resilient to the flaring up of the
investor confidence in the longevity of the eurozone. Investors
Greek debt crisis.
could then permanently price in higher risk premiums, especially for the weaker member states. Furthermore, it may
US retail sales
take longer to restore confidence. Countries in trouble would
%3mo3M
officially need to be in an adjustment programme. So it is unclear how quickly the OMT could be activated. Focus on improving cyclical picture With Greek exit risks starting to ease, investors should start to focus on economic fundamentals. And here is the good news. They are improving. Indeed, if the situation with Greece remains calm, we think there is every chance we will see a synchronised acceleration in the growth of the world’s three
15 10 5 0 -5 -10 -15 -20 -25 09
10
11
12
13
14
15
biggest economies over coming quarters. To be fair, it would be about time. The start to the year has been terrible, with sharply lower growth in the US and ongoing deceleration in the
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
pace of expansion in China. On our reckoning, world GDP, industrial production and trade had an exceptionally weak
Recovery looks to become self-sustaining
quarter in Q1. Fortunately a rebound in global activity
Although the euro, oil prices and bond yields have recently
indicators looks to be in the offing, starting in Q2.
risen, the full effects of the tailwinds for the eurozone economy are still in front of us. More importantly they have already
World economy slowed sharply in Q1
provided the trigger for a self-sustaining recovery. With
World trade, %3mo3m
confidence returning, companies should invest and hire at a
14 12 10 8 6 4 2 0 -2 -4 -6
faster pace. A recovery in job growth should also support consumer demand. A shrinking US economy For the second consecutive year, the US economy actually shrank in the first quarter. This poured cold water on the optimism about the US outlook that built during the course of 2014 and led to downward revisions in growth forecasts, 11
12
13
14
15
including our own. However, there are a number of special factors that explain the weakness, including bad weather, port strikes and statistical effects caused by seasonal adjustment
Source: Thomson Reuters Datastream, CPB
problems. More fundamentally, the decline in oil prices seems to have had a negative impact on the US economy in the
Europe supported by three tailwinds
short-term. The scaling back of investment in the oil and gas
With the exception of Japan, the eurozone economy was the
sector has come through very quickly and has had a significant
only major region to perform well in the first quarter. Economic
effect on overall demand. On the other hand, consumers were
growth came in at 0.4% qoq for the second consecutive
slow to spend their oil-related windfalls.
3
Global Macro View - Greek shadow to lift - 25 June 2015
US consumer back in the shops
Unwinding of the bond bubble
The good news is that the most recent data suggests that US
We think these risks are manageable, not least because
consumers are now catching up. Retail sales signal a sharp
inflation is subdued. The rise in government bond yields is
rebound in consumer demand in the second quarter. This
partly an upward correction from the ludicrously low levels
makes sense. The labour market is in rude health, balance
seen earlier in the year, where investors took aggressive long
sheets are strong and consumer confidence is high. There was
positions ahead of and during the early stages of the ECB’s
no good reason for households to be sitting on the gains from
QE policy. This led to stretched valuations to bubble-like
lower oil prices. With the housing market also firming and
territory. However, in the immediate future, there are factors
businesses showing signs of stepping up capital spending,
that should limit the extent of the rise in bond yields. The start
there is good reason to think that economic growth will be
of the Fed’s monetary tightening cycle should certainly push up
robust in coming quarters.
Treasury yields further. However, the US central bank is signalling that it will raise its policy rate at the slowest pace in
China economy has been slowing…
history. In addition, the ECB is committed to continuing its
The Chinese economy also lost considerable momentum at
asset purchases until September 2016. In the near term,
the start of the year. The authorities have continued a ‘dual-
government bond buys combined with weak net supply should
mandate’ policy. First, achieving a better, more sustainable
lead to a scarcity of eurozone AAA government bonds, which
growth mix, which does not exacerbate financial risks
should be supportive for prices.
emanating from property and debt. Second, doing so while maintaining the growth target of 7%. It looks like economic
Inflation will rise but within targets
growth slowed to levels that left the economy on track to
In any case, global inflation is extremely subdued. Although we
undershoot the target, as investment and exports lost
expect US and eurozone inflation to firm going forward as oil
considerable momentum.
price inflation normalises and economic growth turns up, it is unlikely to sustainably threaten central bank targets. This
…but should turn on stimulus
means that the Fed and the ECB would have room to respond
Against this background, the PBoC has been easing monetary
in the case that financial conditions tightened too quickly. For
policy, reducing both its lending rates and reserve ratios.
instance, the Fed could delay rate hikes, or normalise at an
Furthermore, requirements for second home purchases were
even slower pace. While the ECB could step up or extend QE.
eased. Meanwhile, the government has put in place measures to encourage infrastructure spending programmes, such as
Taking a walk on the supply side
railway investment projects. These measures look to be
A longer-term concern is that potential economic growth in the
gaining traction. The PMI surveys have started to stabilise,
big economies looks to have come down. Eurozone trend
while Bloomberg’s monthly GDP growth indicator has risen for
growth looks to be not much above 1%, while in the US it is
three months after a low in February. Stronger US and
estimated at 2-2.5%. In both cases, it looks to have come
eurozone demand should also support exports in China as well
down by around 1 percentage point from pre-crisis peaks.
as in other Asian markets. We expect the economy to continue
Similarly in China, the authorities are engineering a slowdown
to pick up, so that the authorities get year-average growth at
in growth having taken a view that the double-digit rates of the
around the target level.
past are unsustainable. Labour force growth rates have weakened, mainly due to ageing, while in the US and
Risk of early tightening of financial conditions
eurozone productivity growth has been lower than expected.
Apart from Greek euro exit, the other risks look to relate to
This could be a hang-over from the crisis. Indeed, the financial
monetary policy in advanced economies. The large central
and asset price booms seen pre-crisis may have just flattered
banks have eased monetary policy aggressively, but need to
economic performance. All this suggests that growth is likely to
manage expectations, so that financial conditions do not
settle at relatively low levels over the coming years a cyclical
tighten too quickly. The Federal Reserve looks to raise interest
spurt over the next year or two.
rates for the first time in ten years over the next few months (our base case is September). On the other hand, the ECB
Structural reforms by governments to encourage labour market
looks set to continue its asset purchases in coming months,
participation and improve productivity could be one counter-
though it has been unable to stop bond yields and the euro
weight to these trends, but there is little sign of widespread
rising significantly over the last two months. Indeed, there has
action. Alternatively, a recovery in investment over times
been a global rout in the bond market. This raises the risk of a
should boost productivity. Finally, technical progress and the
premature and abrupt tightening of financial conditions, which
application of new technologies in the production process
could threaten the economic recovery.
could also be a fillip to productivity.
4
Global Macro View - Greek shadow to lift - 25 June 2015
25/06/2015
GDP (% yoy)
Inflation (% yoy)
Unemployment (%)
2013
2014
2015E
2016E
2013
2014
2015E
2016E
2013
2014
2015E
US
2.2
2.4
2.7
3.1
1.5
1.6
0.4
2.4
7.4
6.2
5.2
4.7
Japan
1.6
-0.1
1.1
1.2
0.3
2.8
0.8
1.4
4.0
3.7
3.6
3.4 10.6
Eurozone
2016E
-0.4
0.9
1.8
2.3
1.3
0.5
0.4
1.7
12.0
11.6
11.2
Germany
0.2
1.6
2.0
2.5
1.6
0.8
1.0
2.0
6.9
6.7
6.5
6.3
France
0.4
0.4
1.4
1.9
1.0
0.6
0.4
1.7
10.3
10.3
10.4
10.2
Italy
-1.9
-0.3
0.5
1.0
1.3
0.1
-0.7
0.7
12.2
12.6
13.5
13.7
Spain
-1.2
1.4
2.8
2.9
1.5
-0.2
-0.4
1.8
26.1
24.5
22.6
20.4
The Netherlands
-0.4
1.0
2.3
2.2
2.6
0.3
0.1
1.6
7.3
7.4
7.0
6.6
Belgium
0.3
1.1
1.7
2.1
1.2
0.5
0.5
1.6
8.4
8.5
8.3
8.0
Austria
0.2
0.3
1.2
2.0
2.1
1.5
1.3
2.2
4.9
5.6
5.5
5.3
Finland
-1.2
-0.1
0.4
1.2
2.2
1.2
0.5
1.6
8.2
8.7
8.9
8.7
Greece
-4.4
0.7
0.5
2.7
-0.9
-1.6
-1.9
0.0
27.5
26.3
24.8
23.2
Portugal
-1.4
0.9
2.0
2.6
0.4
-0.2
0.1
1.5
16.4
14.3
13.3
12.6
0.2
5.3
3.7
3.3
0.5
0.4
0.6
1.7
13.1
11.0
9.5
8.5
UK
1.7
3.0
2.8
2.6
2.6
1.4
1.1
1.9
7.5
6.1
5.3
5.2
Sweden
1.3
1.1
1.6
2.0
0.2
0.0
0.3
1.0
8.2
7.9
6.5
6.0
Denmark
-0.5
1.1
1.5
1.2
0.8
0.6
0.6
1.1
5.7
4.9
4.7
4.5
1.7
1.5
0.8
0.8
-0.2
0.0
-1.5
-0.8
3.2
3.1
3.5
3.6
Ireland
Switzerland Norway
2.0
2.2
1.7
2.0
2.0
2.2
2.2
2.2
3.5
3.5
4.0
4.0
Canada
2.0
2.2
2.2
2.7
1.0
2.0
0.5
2.1
7.0
6.8
6.5
6.0
Australia
2.8
2.9
1.9
2.9
2.5
2.5
2.0
2.7
5.9
6.2
6.5
6.0
New Zealand
2.7
3.5
2.9
2.8
1.6
1.4
1.0
2.0
6.0
5.2
5.0
4.7
4.3
3.9
3.7
3.7
2016E
World World trade
3.2
3.3
3.2
3.8
2.6
3.3
5.0
6.0
Current account (% GDP)
Budget balance (% GDP)
Government debt (% GDP)
2013
2014
2015E
2016E
2013
2014
2015E
2016E
2013
2014
2015E
-2.4
-2.3
-2.3
-2.4
-4.1
-2.8
-2.5
-2.2
72
74
75
77
Japan
0.7
0.6
0.6
0.6
-8.3
-7.0
-6.5
-6.3
243
247
243
240
Eurozone
2.6
2.9
3.2
3.1
-2.9
-2.4
-2.3
-2.0
91
92
92
91
6.9
7.6
7.3
7.0
0.1
0.7
0.6
0.5
77
75
71
68
-1.9
-1.6
-1.0
-1.5
-4.1
-4.0
-3.8
-3.5
92
95
97
98
1.0
2.0
2.0
2.5
-2.9
-3.0
-2.9
-2.9
129
132
134
134 102
US
Germany France Italy Spain
0.8
0.6
1.1
1.0
-6.8
-5.8
-4.2
-3.3
92
98
101
The Netherlands
11.0
10.8
10.4
10.0
-2.4
-2.4
-2.0
-1.0
68
68
67
66
Belgium
-1.5
0.4
1.5
1.5
-2.9
-3.2
-2.8
-2.6
104
107
107
106
Austria
2.3
2.3
2.5
2.3
-1.3
-2.4
-1.9
-1.6
81
85
87
86
Finland
-2.0
-1.8
-1.0
-0.7
-2.5
-3.2
-3.3
-3.1
56
59
63
64
Greece
-2.7
-2.8
-1.8
-1.8
-12.3
-3.5
-2.0
-0.5
175
177
177
175
Portugal
-0.3
-0.1
0.2
0.5
-4.8
-4.5
-3.5
-2.8
130
130
129
127
Ireland UK
4.4
6.0
6.0
5.5
-5.8
-4.1
-3.0
-3.0
123
110
110
105
-4.2
-3.9
-3.7
-3.6
-5.8
-5.4
-4.4
-3.4
87
89
90
90
Source: Thomson Reuters Datastream, EIU, ABN AMRO Group Economics
5
Global Macro View - Greek shadow to lift - 25 June 2015
25/06/2015
GDP (% yoy)
Inflation (% yoy)
2013
2014
2015E
2016E
2013
2014
2015E
2016E
Emerging Asia
6.5
6.4
6.3
6.4
4.7
3.5
2.7
3.2
Emerging Europe
1.8
1.3
-1.0
1.9
5.3
6.3
11.2
5.3
Latin America
2.4
1.0
0.3
2.0
8.9
12.6
13.5
11.5
Middle East / North Africa
1.5
3.0
2.9
4.1
13.5
7.4
7.1
6.8
EM Total
4.6
4.4
3.9
4.8
6.5
5.8
6.1
5.2
Eurozone
-0.4
0.9
1.8
2.3
1.3
0.5
0.4
1.7
US
2.2
2.4
2.7
3.1
1.5
1.6
0.4
2.4
World
3.2
3.3
3.2
3.8
4.3
3.9
3.7
3.8
China
7.7
7.4
7.0
7.0
2.6
2.0
1.5
2.0
India
6.9
7.3
7.5
7.5
10.7
6.7
5.5
5.5
Turkey
4.2
2.9
3.0
3.5
7.5
8.9
7.3
6.5
Russia
1.3
0.6
-4.0
0.5
6.8
7.8
15.0
6.0
Brazil
2.7
0.1
-1.0
2.0
6.2
6.3
8.3
5.5
2016E
Current account (% GDP)
Budget balance (% GDP)
2013
2014
2015E
2016E
2013
2014
2015E
1.2
1.8
2.5
2.0
-2.5
-2.3
-2.5
-2.5
Emerging Europe
-1.3
0.1
1.0
0.0
-1.6
-1.5
-3.0
-2.0
Latin America
-3.0
-3.0
-3.5
-3.0
-2.8
-4.7
-5.5
-4.0
8.5
5.7
-1.0
1.0
0.3
-2.0
-7.0
-4.0
Emerging Asia
Middle East / North Africa Eurozone US
2.6
2.9
3.2
3.1
-2.9
-2.4
-2.3
-2.0
-2.4
-2.3
-2.3
-2.4
-4.1
-2.8
-2.5
-2.2
Emerging economies* China
2.1
2.3
2.5
2.0
-1.9
-1.8
-2.5
-3.0
India
-2.6
-1.3
-1.5
-2.0
-4.4
-4.0
-4.0
-4.0
Turkey
-7.9
-5.7
-5.5
-6.0
-1.2
-1.3
-1.5
-1.5
Russia
1.7
3.2
5.0
4.0
-0.5
-0.5
-3.5
-1.5
-4.0
-4.5
-4.0
-4.0
-2.9
-6.3
-6.5
-4.5
Brazil
* 2015 and 2016 for current account and b udget deficit are rounded figures Source: Thomson Reuters Datastream, EIU, ABN AMRO Group Economics
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6
Global Macro View - Greek shadow to lift - 25 June 2015
KEY RATES FORECASTS 25/06/2015
Official policy rate (%, eop)
3m interbank rate (%, eop)
2013
2014
2015E
2016E
2013
2014
2015E
US
0.25
0.25
0.75
2.25
0.2
0.3
0.9
2016E 2.4
Japan
0.10
0.10
0.10
0.10
0.2
0.1
0.2
0.2 0.1
Eurozone
0.25
0.05
0.05
0.05
0.3
0.1
0.0
UK
0.50
0.50
0.75
1.75
0.6
0.6
1.0
2.0
Sweden
0.75
0.00
-0.50
-0.50
0.8
0.3
-0.5
-0.3
Denmark
0.20
0.20
-1.00
-1.00
-0.2
0.0
-1.0
-1.0
Switzerland
0.00
0.00
-1.00
-1.00
0.0
0.0
-1.0
-1.0
Norway
1.50
1.25
0.75
1.00
1.5
1.5
0.8
1.3
Canada
1.00
1.00
0.75
1.25
1.1
1.2
1.0
1.5
Australia
2.50
2.50
1.75
2.25
2.6
2.7
2.0
2.5
New Zealand
2.50
3.50
2.75
3.00
2.7
3.7
3.0
3.2
10y government bond yields (%, eop)
Spread versus Bunds (% points)
2013
2014
2015E
2016E
2013
2014
2015E
US
3.0
2.2
2.8
3.0
0.5
0.4
0.1
0.1
France
Japan
0.7
0.3
0.7
1.0
2.3
1.4
0.7
0.6
Italy
Eurozone (Bunds)
1.9
0.5
0.9
1.8
2.2
1.3
0.4
0.3
Spain
UK
2.4
2.2
2.0
2.7
0.3
0.1
0.0
0.0
The Netherlands
Sweden
2.5
1.2
1.3
1.5
0.6
0.3
0.1
0.1
Belgium
Denmark
2.0
0.9
1.2
1.3
0.3
0.2
0.0
0.0
Austria
Switzerland
1.0
0.4
-0.3
-0.3
0.2
0.1
0.0
0.0
Finland
Norway
3.0
2.3
1.8
2.5
6.5
7.3
4.5
3.0
Greece
Canada
2.8
2.1
2.0
2.8
4.1
2.4
1.2
0.8
Portugal
Australia
4.3
3.3
2.5
3.5
1.7
0.8
0.3
0.2
Ireland
New Zealand
4.7
4.1
3.5
4.0
Exchange rates (versus USD, eop)* 2013
2014
2015E
2016E
Exchange rates (versus EUR, eop)* 2016E
USD
2013
2014
2015E
2016E
1.38
1.21
1.00
1.15
EUR/USD
141
145
128
155
EUR/JPY EUR/GBP
USD/JPY
103
120
128
135
USD/EUR
0.73
0.83
1.00
0.87
GBP/USD
1.66
1.51
1.49
1.51
0.83
0.80
0.67
0.76
USD/SEK
6.35
7.77
9.5
8.3
8.75
9.40
9.5
9.5
EUR/SEK
USD/DKK
5.41
6.15
7.1
7.8
7.46
7.44
7.5
7.5
EUR/DKK
USD/CHF
0.91
0.99
1.1
1.0
1.25
1.20
1.1
1.1
EUR/CHF
USD/NOK
5.88
7.56
8.5
7.0
8.10
9.15
8.5
8.0
EUR/NOK
USD/CAD
1.07
1.16
1.3
1.4
1.47
1.40
1.3
1.6
EUR/CAD
AUD/USD
0.89
0.83
0.7
0.7
1.55
1.46
1.4
1.7
EUR/AUD
NZD/USD
0.82
0.77
0.7
0.6
1.68
1.57
1.5
1.9
EUR/NZD
6.10
6.20
6.3
6.4
8.40
7.51
6.3
7.4
EUR/CNY
61.90
63.33
65
66
85.29
81.06
65
76
EUR/INR
USD/CNY USD/INR USD/TRY
2.14
2.33
2.9
2.9
2.94
2.82
2.9
3.3
EUR/TRY
USD/RUB
32.73
60.74
50
45
45.10
73.50
50
52
EUR/RUB
USD/BRL
2.34
2.66
3.2
3.4
3.23
3.21
3.2
3.9
EUR/BRL
*2015 and 2016 are rounded figures Source: Thomson Reuters Datastream, EIU, ABN AMRO Group Economics