Daily Insight IMF stance pressures Greek deal
Group Economics Macro & Financial Markets Research Nick Kounis, Aline Schuiling
+31 20 343 5616
31 July 2015
IMF will not participate in Greece deal without large-scale debt relief Eurozone economy resilient to Greece crisis, but Greek economy in deep recession US GDP bounces back in Q2, but revisions point to moderate trend growth
IMF refuses to play ball without debt relief
Greece: economic sentiment and GDP growth
IMF staff have advised its board that the institution should not
Index
% qoq
120
4 3 2 1 0 -1 -2 -3 -4 -5 -6
participate in a 3rd bailout of Greece given the country’s high debt levels and poor implementation record. This was according to a strictly confidential summary of the IMF’s last
110
board meeting, which seems to have been ‘accidently’ leaked
100
to the FT. This suggests that eurozone states will have to
90
provide Greece with large-scale debt relief for the IMF to join.
80
Germany and others seem to be reluctant to provide Greece
70
with anything more than modest debt relief, and only after the first review of the programme, which would on current plans be in November. If the IMF refuses to participate it causes several problems. It increases the financing gap, as the ESM will lend only EUR 50bn of the EUR85bn needed. In addition, Germany may not approve a programme without the IMF on board. All
60 04 05 06 07 08 09 10 11 12 13 14 15 GDP (rhs)
Economic sentiment (lhs)
Source: ABN AMRO Group Economics, European Commission
this shows that major risks remain in putting in place a viable programme for Greece and that Grexit risk is not off the table.
US economy rebounds in Q2… GDP growth in the US accelerated to 2.3% qoq annualised in
Eurozone economic sentiment signals growth pick-up …
Q2, following an upwardly revised 0.6% rise in Q1 (revised
Meanwhile, economic sentiment in the eurozone increased to
from -0.2%). This also left annual growth at a moderate 2.3%
its highest level in four years in July. It rose to 104.0 from
in the year to Q2. The rebound in economic growth in the
103.5 in June. We expect economic growth to have picked up
second quarter reflected a combination of stronger consumer
further after Q1’s 0.4% qoq.
spending and a normalisation of exports, after extreme weakness in Q1. We think that the economic recovery will
…led by Spain…
continue, with growth supported in particular by consumer
Of the big economies, the star performer is Spain. Economic
demand. Households have benefited from a strengthening
sentiment rose from 108.4 in June to 108.7 in July. This
labour market and rising wealth levels.
favourable position was confirmed by the first estimate of GDP in Q2, which grew by 1.0% qoq, up from 0.9% in Q1. Spain is
…but trend growth low
outperforming as its competitive position has improved
Perhaps the biggest story in the report were downward
significantly in recent years. This reflects labour cost falls as
revisions to economic growth over the last few years. Between
well as economic reforms.
the end of 2001 and the end of 2004, the economy is now reported to have grown by just 2.1%, compared to 2.4%
… while Greece moves deeper into recession …
previously. Over the last ten years, economic growth has
Predictably, economic sentiment in Greece nose-dived in July.
averaged only 1.5%. This suggests that trend growth is low,
It dropped to 81.3, down from 90.7 in June. The drop in
and even the moderate rates we have seen recently therefore
sentiment in the past few months suggests that GDP is
likely constitute above-trend growth. This would also be
contracting at a rate of around 2-3% qoq, which would put the
consistent with the relatively buoyant job growth and significant
economy back into the unfortunate position of 2011-2012.
declines in unemployment we have seen.