Macro Weekly On track to where?
Group Economics
Han de Jong +31 20 628 4201
26 June 2015 This is the last Weekly Comment before our summer break. Other commentaries will continue. Service of the Weekly will restart 31 July. You may need a magnifying glass to see it, but talks between Greece and its partners are still making progress. Movement in the global economy is a little more convincing and is in the right direction. So we are on track. The only thing we need to figure out is: where to? A couple of observations about the Greek saga
reduction. The institutions are unwilling to give it to them.
At the time of writing, talks between Greece and the institutions
This is largely for political reasons - a debt reduction is hard
had not reached a final conclusion. There has been some
to sell to the electorate in other countries. An alternative can
progress all the same. The Greek government has recently
be found easily, at least in theory. While the debt is
made concessions in areas which they had declared taboo.
unsustainable at market conditions, the partners can
But the institutions want Mr Tsipras to move further.
alleviate the burden very significantly by lowering the interest rate and lengthening maturities or even applying grace
I cannot look into the heads of the Greek government, but it
periods. That has already happened, but the institutions
seems to me that the accelerated outflow of bank deposits has
could go further. This really makes the issue of debt
forced Mr Tsipras's hand. The ECB reviews how much
reduction a symbolic one.
additional liquidity support Greek banks need on a daily basis. That is an indication of the pressure on the system. This cannot go on for very long.
• The average Greek has suffered tremendously in recent years. True, Greece has lived beyond its means for a long time, but the average Greek is not to be blamed for that, nor
We are being inundated by news and commentary about
does this admission make it easier to cope with the income
Greece, so what can I add? Perhaps just a couple of
losses the Greek population has endured. What the country
observations I feel are not getting the attention they deserve.
desperately needs is economic growth. It is shocking that hardly anybody seems to be talking about that. The Greek
• While Greece is threatening to run out of money, one needs
economy started to recover last year. Experience in Spain
to realise that its financing needs largely reflect debt service
and Ireland shows that it takes a while for a recovery to
payments. Excluding debt service payments (the 'primary
spread sufficiently for large numbers of people to feel it, but
budget' in the jargon of economists) Greece is actually close
Greece was on its way. Unfortunately, the change of
to balance. So it is not as though the government will run out
government and the unsuccessful talks between Greece and
of money if it were to default. When the crisis reached a peak
the institutions has pushed the economy back into
in 2011/12 we argued that defaulting on debt was not likely
submission. It is also regrettable that the institutions are not
at that time as the government needed large borrowings to
sweetening their proposals with an investment programme
fund its day-to-day running of the economy. We also
which could provide stimulus in the short term and increase
asserted that a real default would be more likely once the
Greece's growth potential in the longer term.
government was running a primary surplus. So that would be now.
• There appears to be a perception that no progress was made in recent years in terms of strengthening the Greek
• The snag here is the banks. If the Greek government were to
economy. That is plainly wrong. The World Bank publishes
default, the ECB would, most likely, have to stop the liquidity
an annual ranking of countries called "Ease of doing
support to Greek banks and that would be the end of them in
Business". Between 2008 and 2015, Greece has risen from a
their current form.
dismal 108th position to the 61st. For the sort of country
• Greece's public debt is unsustainable and something has to happen. The Syriza government wants a formal debt
Greece is, that is still a poor ranking on a list of 189 countries, but it shows improvement. The same is true for the
2
Macro Weekly - On track to where? –26 June 2015
World Economic Forum's World Competitiveness Report. No
trend growth. The eurozone economy has been benefitting
eurozone country has risen more on that list in recent years
from significant tailwinds, even though some of these are
than Greece. OK, it is still only just ahead of Moldova, Iran,
losing some strength. We believe that the eurozone economy
El Salvador and Armenia, but at least there has been
is gradually moving towards a self-sustaining recovery.
progress. It would be a huge pity to waste that all. Monetary statistics confirm the positive trend. M3 growth • Some argue that Greece would be better off leaving the
slowed in May to 5.0% yoy, down from 5.3% in April, but M1
euro. I don't think so. First, we can safely assume that the
growth continued to accelerate: 11.2%, from 10.5%. M1 growth
initial response would be chaos. A new Greek currency
is a better indicator for cyclical developments than M3. Bank
would be weak and the cost of imported goods would rise
lending is improving also, slowly but clearly.
significantly, further depressing the standard of living. In addition, the financial system would collapse, probably
Recent US data is suggesting that US consumers, who had
leading to some sort of barter economy. And even with its
disappointed earlier this year, are starting to spend more.
own currency, the Greek government would have to bring its
Personal income continued to grow in May: +0.5% mom after
books in order and improve Greece's growth dynamic. It
+0.5% in April, while spending growth amounted to 0.9%. This
simply cannot avoid the measures the institutions are
is perhaps one of the first signs that US consumers are starting
demanding.
to spend the windfall they are enjoying due to lower energy costs. Housing market data showed continued improvement.
What if?
Business confidence indicators in the US were mixed. The
European authorities do not want any country to leave the
PMIs for June were weaker than anticipated, but the Philly Fed
eurozone as that would imply breaking the euro and inviting a
index rose and by more than expected.
bank run on any country that may get itself in trouble in the future. It is not a precedent they want to create. That said, the
Data in Japan suggests that the country may have a better
vulnerabilities in other countries are much reduced and they
chance than it has had in a long time to escape deflation.
are all on the road to recovery, albeit at different stages in that
Growth in the first quarter was strong and it looks like the
process. I thus find it hard to believe that markets would start
economy is able to maintain a decent pace of growth while
pricing in risks of an exit for a variety of countries should
inflation is modestly positive. Finally, Chinese business
Greece default and leave the euro. But this is uncharted
confidence data is stabilising. This is an indication that the
territory and one cannot be sure.
policymakers are successful at halting the deceleration of growth.
Encouraging economic data Recent data releases in the main economies have been
So where to?
encouraging. The preliminary readings on the PMIs in the
I started this commentary by asking where we are moving to. It
eurozone were better than expected in June, although the Ifo
seems to me that the global economy is moving to a
index in Germany was weaker than expected. This is
synchronised acceleration of growth in the second half of the
something to keep an eye on given this indicator's track record
year. That is good news. And Greece? Well, we continue to
of signalling developments in the German and European
think that a deal will be struck, even if it is shortly after crucial
economy. However, the Ifo index continues to indicate above-
deadlines expire. But to be frank, who knows...
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Macro Weekly - On track to where? –26 June 2015
Main economic/financial forecasts GDP grow th (%)
2013
2014
2015e
2016e
2.2
2.4
2.7
3.1
United States
-0.3
0.9
1.8
2.3
Eurozone
Japan
1.6
-0.1
1.1
1.2
United Kingdom
1.7
2.8
2.8
2.6
China
United States Eurozone
3M interbank rate
18/06/2015 25/06/2015
+3M
+12M
2015e
0.28
0.28
0.7
1.5
0.9
2016e 2.4
-0.01
-0.01
0.00
0.00
0.00
0.10
Japan
0.17
0.17
0.2
0.2
0.2
0.2
United Kingdom
0.57
0.58
0.6
1.5
1.0
2.0
18/06/2015 25/06/2015
2016e
7.7
7.4
7.0
7.0
World Inflation (%)
3.2 2013
3.3 2014
3.2 2015e
3.8 2016e
+3M
+12M
2015e
United States
1.5
1.6
0.4
2.4
US Treasury
2.33
2.41
2.7
3.0
2.8
3.0
Eurozone
1.3
0.4
0.4
1.7
German Bund
0.81
0.86
0.8
1.6
0.9
1.8
Japan
0.3
2.8
0.8
1.4
Euro sw ap rate
1.18
1.21
1.1
1.9
1.2
2.0
United Kingdom
2.6
1.5
1.1
1.9
Japanese gov. bonds
0.43
0.46
0.6
1.0
0.7
1.0
China
2.6
2.0
1.5
2.0
UK gilts
2.05
2.15
1.7
2.5
2.0
2.7
World Key policy rate
4.3 25/06/2015
3.9 +3M
3.7 2015e
3.8 2016e
18/06/2015 25/06/2015
+3M
+12M
2015e
2016e
Federal Reserve
0.25
0.50
0.75
2.25
EUR/USD
1.14
1.12
1.00
1.05
1.00
1.15
European Central Bank
0.05
0.05
0.05
0.05
USD/JPY
123.0
123.6
125
135
128
135
Bank of Japan
0.10
0.10
0.10
0.10
GBP/USD
1.59
1.57
1.47
1.50
1.49
1.51
Bank of England
0.50
0.50
0.75
1.75
EUR/GBP
0.72
0.71
0.68
0.70
0.67
0.76
People's Bank of China
5.10
4.85
4.85
4.85
USD/CNY
6.21
6.21
6.26
6.37
6.30
6.40
10Y interest rate
Currencies
Source: Thomson Reuters Datastream, ABN AMRO Group Economics.
Key macro events Day
Date
Time
Country
Monday Monday Monday Monday Monday Monday
29/06/2015 29/06/2015 29/06/2015 29/06/2015 29/06/2015 29/06/2015
01:50:00 11:00:00 14:00:00 15:45:00 16:00:00
JP EC DE EC US BE
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015
09:55:00 09:55:00 10:30:00 11:00:00 11:00:00 11:00:00 15:00:00 15:45:00 16:00:00
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Industrial production - % mom Economic sentiment monitor - index CPI - % yoy ECB announces weekly QE details Pending home sales - % mom CPI - % yoy
May P Jun Jun P
1.2 103.8 0.7
-0.8 103.8 0.5
103.5 0.6
May Jun
3.4 0.6
1.0
1.5
DE DE GB EC EC EC US US US
Unemployment - % Unemployment change - thousands GDP - % qoq Core inflation - % yoy CPI - % yoy Unemployment - % S&P/Case Shiller house price index Chicago Fed - business confidence - index Conference Board cons. confidence - index
Jun Jun 1Q F Jun A Jun May Apr Jun Jun
6.4 -6 0.3 0.9 0.3 11.1 1.0 46.2 95.4
6.4 -5 0.4 0.8 0.2 11.1 1.0 50.5 97.2
6.4
01:50:00 03:00:00 03:45:00 03:45:00 09:30:00 10:00:00 10:30:00 14:15:00 15:45:00 16:00:00
JP CN CN CN NL EC GB US US US RU
Tankan business conditions large enterprises PMI manufacturing - index (official) PMI non-manufacturing - index (official) PMI manufacturing - index (HSBC) PMI manufacturing - index PMI manufacturing - index PMI manufacturing - index ADP nat. employment report - thousands Markit - Flash PMI ISM manufacturing - index GDP - % yoy
2Q Jun Jun Jun F Jun Jun F Jun Jun Jun F Jun 1Q F
12.0 50.2 53.2 49.6 55.5 52.5 52.0 201.0 53.4 52.8 -2.2
12.0 50.4
02/07/2015 02/07/2015 02/07/2015 02/07/2015 02/07/2015 02/07/2015 02/07/2015
09:30:00 14:30:00 14:30:00 14:30:00 14:30:00 14:30:00 14:30:00
SE US US US US US US
Policy rate - % Initial jobless claims - thousands Hourly earnings - % mom Hourly earnings - % yoy Change in employment private employment - thousands Change in employment total - thousands Unemployment - %
Jul 2 Jun 27 Jun Jun Jun Jun Jun
-0.3 271.0 0.3 2.3 262 280 5.5
0.2 2.3 222 226 5.4
03/07/2015 03/07/2015 03/07/2015 03/07/2015 03/07/2015
03:45:00 10:00:00 10:00:00 10:30:00 11:00:00
CN EC EC GB EC
PMI services - index (HSBC) PMI services - index Composite PMI output PMI services - index Retail sales - % mom
Jun Jun F Jun F Jun May
53.5 54.4 54.1 56.5 0.7
54.4 54.1 57.5 0.1
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
0.8 0.3 11.0 1.0 98.0
49.6 55.5 52.5 52.5 210.3
220
53.2 -2.1
53 -2.1
-0.3 0.2 2.3 220 230 5.4