MacroScope

Good news for Greece?

By Mike Peacock
April 4, 2014

Unemployment is sky high, national debt is not far short of double the size of an economy which is still shrinking and its ruling coalition has a wafer-thin majority, yet there are glimmers of hope in Greece.

Having finally struck a deal with the EU and IMF to keep bailout loans flowing, Athens is preparing to dip its toe back into the bond market with a five-year bond for up to 2 billion euros.

The government has not said when the syndicated issue might be launched but having mandated banks for the sale the likelihood is sooner rather than later. It’s a remarkably quick return two years after a debt restructuring which was essentially a default.

Today, there could be more good news. Moody’s will review its credit rating of Greece and it is possible that an upgrade – or a signal of future intention to do so – could be forthcoming. Moody’s upped Greece two notches to Caa3 late last year but it remains deep, deep in junk territory. It also has some catching up to do. Both S&P and Fitch already rate Greece three notches higher.

The finance minister told us this week that Greece expects to fund itself unaided in 2016 and return to economic growth this year. Yannis Stournaras said Athens did not need additional financing beyond its current bailout for the next year and hoped it would not need fresh aid for the year after that. But by running a primary budget surplus it could be eligible for further debt relief from its euro zone partners which may take the form of extending repayment terms on existing bailout loans and lowering interest rates rather than injecting fresh funds.

There are a host of other credit ratings reviews due today. Fitch has already affirmed its rating of Turkey at BBB-, the lowest level of investment grade, and kept the outlook stable. However, it cut its growth forecast for Turkey to 2.5 percent from 3.2 percent this year. It was reassured that the central bank will keep the show on the road after it dramatically raised interest rates in January to stabilize the lira.

The agency also said “political noise” would continue unabated up to parliamentary elections in mid-2015 and would periodically cloud the economic outlook. Which begs the question how well the country could be doing if that noise did die down.

For the markets, U.S. non-farm payrolls will eclipse all else. The big European economic figure of the day is German industry orders which has just come out and jumped 0.6 percent in February, well above forecasts, though there was an even larger downward revision to the January number.

The German Economy Ministry said the data indicates production will continue to revive in the months to come. This week’s PMI surveys showed euro zone businesses started 2014 with their best quarter in three years, though that growth came as they slashed prices to drum up trade, which could heighten the threat of deflation.

The European Central Bank shifted the goal posts yesterday, saying dramatic policy action up to and including QE could be taken if inflation stayed too low for too long – i.e. before deflation takes hold. But whether this is more verbal intervention to talk down the euro and money market rates rather than a firmer intention to act only time will tell.

Norway’s finance ministry will present an update on activities of the $850 billion sovereign wealth fund, including reforms to the way it invests. It is likely to be allowed to boost investments in green technologies. Also up for debate is whether the fund will be allowed to invest in private equity and infrastructure.

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