FINANCE ministers from the world’s largest developed economies meet in Germany this week against a backdrop of faltering global growth, scant inflationary pressures and a bond market in turmoil.
High on their agenda – even if unofficially – will be Greece and how it can stay in the troubled euro zone. Figures due on Friday from the US that will almost certainly show the world’s biggest economy contracted last quarter are also likely to feature.
“With the negotiations between Greece and the rest of the euro area at an impasse, an impatient German Chancellor (Angela) Merkel has warned that an agreement must be reached before the end of the month,” said Thomas Costerg, a senior economist at Standard Chartered.
Greece could not make a payment to the International Monetary Fund due on June 5 unless foreign lenders disbursed more aid, a senior ruling party lawmaker said last week, the latest warning from Athens that it was on the verge of default.
Analysts largely agree the country’s cash squeeze is increasingly acute and fresh aid will be needed sooner or later to avoid bankruptcy.
Merkel and French President Francois Hollande held talks on Thursday with Greek Prime Minister Alexis Tsipras on the sidelines of a EU summit in Riga, hoping to speed the resolution of Athens’ debt crisis.
With business growth slowing in the euro zone and factory activity contracting again in China, market watchers have been looking to the US to drive a pick-up in growth.
But a preliminary Reuters poll last week predicted that adjusted first quarter US gross domestic product (GDP) numbers due on Friday would be massively revised down and show a 0.7 percent contraction in the first three months of this year.
Poor performance
“The poor Q1 (quarter 1) 2015 performance follows growth of just 2.2 percent in Q4 2014, so there has been very little growth over the last couple of quarters,” said Joseph LaVorgna, chief US economist at Deutsche Bank.
“As a result, market participants have started to wonder again whether the US economy might be in an extended period of secular stagnation.”
Revised GDP numbers from Britain on Thursday should say the country’s growth at the start of the year was slightly better than first estimated, at 0.4 percent.
The day before, Prime Minister David Cameron will put forward his government’s legislative plans after his Conservatives won a surprise majority in the May 7 election.
India will also publish GDP numbers on Friday, with economists predicting Asia’s third largest economy expanded a relatively modest 7.4 percent between January and March. Economic activity in Brazil tumbled in the first quarter, its central bank’s IBC-Br index suggested last week, and GDP numbers on Friday are likely to confirm that contraction.
Japan’s central bank has been struggling to get any meaningful inflation for decades and despite near-zero interest rates and many multi-trillion yen stimulus programmes, numbers due on Thursday will show little inflationary pressure.
With inflation negative in Hungary, its central bank is expected to cut rates by a further 15 basis points tomorrow, despite a sell-off in government bonds that has weighed on the forint. The Bank of Canada will leave policy unchanged when it meets on Wednesday. – Reuters