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Prospects daily: IMF expected to participate in Greek debt strategy

Global Macroeconomics Team's picture

Important developments today:

1. IMF role in Greek financial strategy becomes more likely

2. U.S. initial claims for unemployment benefits dip in latest week

3. European confidence on the mend



Mixed performance for world equities. Global stocks were mixed on Thursday, with bourses in Asia mostly lower, while European and U.S. stocks advanced on speculation/expectations that Greece would (at the end of the day) be a recipient of some form of financial assistance. Most Asian markets were down Thursday, following overnight losses in U.S. equities, as disappointing earnings results dented investor sentiment. Japan’s Nikkei-225 inched up 0.1%, while benchmarks in China and Hong Kong slumped 1.1% and 1.2%, respectively. Indian shares climbed 0.3% and Korean stocks finished up 0.4%.

European shares posted gains as European Finance Ministers (the so-called ‘Euro-Group’) backed a conditionality-based approach to assist Greece with supplementary funding to meet required debt service payments coming due in 2010. Europe’s Dow Jones Stoxx-600 Index gained 0.9% in afternoon trading, climbing to highest levels since September 2008. The gauge largely declined for the first two months of 2010 amid market jitters over Greece’s debt concerns. Meanwhile, U.S. equities opened higher, increasing for a third day, with the S&P 500 index up 0.8% and the Dow Jones Industrial Average gaining 0.7% in morning trades.

IMF role in Greek financial strategy seen likely. Following the first day of a summit among heads of government of the European Union, called to discuss the current situation and potential resolutions to the Greek debt problem, leaders are seen to give a nod to German Chancellor Angela Merkel’s push for the IMF to be brought into the discussions. Though details have not been hammered out—and may in fact not be, at the conclusion of the summit tomorrow, some role for the Fund “… a combination of bilateral arrangements and IMF participation”, noted Matti Vanhanen, Finnish Prime Minister, appears a likely outcome. The European Central Bank added to the more upbeat sentiment in financial markets (see above), by announcing a reversal in its policy on Greek bonds, ensuring that Greek debt will not be struck off its list of acceptable collateral in 2011. Chancellor Merkel has opposed announcement of a firm aid commitment today, as well as a meeting of principals of the 16 countries using the euro.


Source: Department of Labor


U.S. initial claims for unemployment insurance dip in latest week. After a string of less-than-optimistic readings for first time claims, affected by severe winter weather and other seasonal–related distortions, initial claims dropped by 14,000 persons in the week ending March-19, at 442,000, the lowest level in 6 weeks [see ]. Smoothing over the seasonally troubled data, a four-week moving average of claims also dropped by 11,600 to 453,2000.

The slowing pace of redundancies is good news for the economy, as employers appear to be growing more optimistic that the upturn in demand seen in the fourth quarter of 2009 may be moving onto a more sustainable foundation. “The data are going mildly in the right direction, consistent with a very slow improvement in the labor market,” notes Anna Piretti of BNP Paribas in New York. “At the same time it is not easing as much as we would have hoped.”

European confidence on the mend. Readings today from Germany on consumer sentiment, and from Italy on confidence in the business sector, showed some fairly surprising tenacity, against the background of what has been a stalled-out Euro Area economy. The Gfk research firm stated that German confidence would hold steady in April, ending a five-month stretch of declines, as the economic outlook begins to brighten. A forecast of the company’s sentiment index pointed to a flat reading at the 3.2 level of March. German business confidence, measured by the IFO survey for March, and released yesterday, displayed a large gain, as the weaker euro (tied in part to Greece’s debt difficulties) should help exporter’s competitiveness.

In Italy, the ISAE business sentiment index gained for a sixth month running (albeit form low levels) as the Euro Area’s third largest economy appears to be picking up following its worst recession since WWII. The ISAE index climbed to 84.1 in March from 83.8 in February, the best reading since June 2008, on improved exports, production and services receipts (tourism etc).


Among emerging markets:

In Latin America and the Caribbean, Argentina’s trade surplus amounted to $604 million in February, according to INDEC, as exports rose 3% while imports surged 30% (y/y) on account of stronger domestic demand for capital goods and consumer goods.

In Central and Eastern Europe, the Czech Republic’s central bank kept its key interest unchanged at a record low 1% today, as higher unemployment affected household spending and a stronger koruna helped bring down inflation.

In Sub-Saharan Africa, South Africa’s producer price inflation accelerated to 3.5% in February up from 2.7% in January (y/y). The central bank unexpectedly cut its benchmark interest rate by 50 basis points to 6.5%, as a stronger rand helped bring down consumer price inflation into the target band of 3% to 6% in February.