World Economy

Crunch Time for Greece; US, Chinese Data in Focus

Crunch Time for Greece;  US, Chinese Data in FocusCrunch Time for Greece;  US, Chinese Data in Focus

Years of uncertainty and economic pain spent keeping Greece in the eurozone boils down in June to a handful of make-or-break debt repayments, while a raft of key data in the next few days will point to the progress of the global economy.

The threat posed to the wider world by an eventual Greek exit from the euro may have diminished over the last few years, but last week the United States warned of an "accident" for the world economy if Greece and its creditors miss deadlines this coming month to avert a debt default, Reuters reported.

Most analysts think Greece has enough cash and options to avoid default when a roughly 300 million euro ($330 million) payment falls due on June 5 to the International Monetary Fund. What happens in the subsequent weeks is less clear.

"We believe meeting the 1.6 billion euros in payments to the IMF by the end of June will be difficult. Payments of 3.5 billion euros on bonds held by the ECB on July 20 appear even more unlikely," said Michael Gapen, economist at Barclays.

"Without an agreement, Greece could descend into what would effectively be an exit from the eurozone, where defaults and capital controls become a permanent feature."

Clear Difference

Gauging the likelihood of a substantive agreement is difficult because of a clear difference in tone between Athens, optimistic of striking a deal soon, and its far more cautious creditors.

Greece's left-wing government – elected in January to fight austerity measures imposed by its international lenders – indicated at the weekend it could compromise on some of its demands, although it didn't specify how.

"The antipathy towards more austerity with the general public and (Greek governing party) Syriza is a major sticking point and means a quick resolution is unlikely if it means Greece has to capitulate," said Ben May, economist at Oxford Economics.

Still, analysts polled by Reuters last week put a less than one-in-three chance on Greece leaving the eurozone this year.

Mark Zandi, chief economist at Moody's Analytics, believes that the global economy is now "largely inoculated" from Greece because European banks – the main channel of contagion – are in better shape than they were a few years ago.

Chinese Fortunes

Instead, a protracted slowdown in China, along with how financial markets respond to the US Federal Reserve's intention to raise interest rates from record low levels, are Zandi's top worries for the world economy going into the second half of this year.

Business surveys this week will show if there are any signs that China's vast industrial sector will shake off its recent stagnation.

"My working assumption is that the Chinese are going to be able to gracefully manage their slowdown. But if they stumble too much, that'll make it more difficult for the global economy to kick into a higher gear for sure, including the US economy," said Zandi.

The world's largest economy (US) contracted in the first three months of the year as it buckled under the weight of unusually heavy snowfalls, but most economists think a rebound is already underway.

Purchasing managers indexes from the United States this week should go a long way to confirming that, but even more important will be the labor market data due on Friday as the Federal Reserve gauges when to raise interest rates.

Fearful of a looming tumble in stocks and bonds from multi-year highs, global investors have increased the share of safe-haven cash in their portfolios to the highest levels in seven months, according to a Reuters poll of fund managers last week.