Greece – Next week's payment to IMF in doubt

Greece – Next week’s payment to IMF in doubt

US – Labor market report dampens economic expectations

Austria – Government debt and deficit lower than expected

Greece – Failure to meet IMF obligation could trigger renewed deposit withdrawals

The upcoming week could bring renewed acceleration of the Greek crisis. On Thursday, a payment to the IMF in the amount EUR 448mn becomes due. Recent statements from Greek politicians concerning the ability to meet this obligation were mixed, but a failure can no longer be ruled out; this would mean a new low point to the crisis. How much liquidity reserves the Greek government still has is not publicly known, but the situation is definitely dire and this is very unlikely to change in the short term. Negotiations with creditors (the European Commission, ECZ and IMF) have progressed very slowly during the last days, if at all.
Accordingly, it can almost be ruled out that, before next week’s payment, additional funds will be released to Greece. Capital markets seem to have prepared for this outcome to some extent, but in the case that the event should occur, we expect risk aversion to increase, with the direction of the impact going according to the asset class. In such a scenario, the focus would once again turn to the ECB. Rising doubts about Greece’s future in the Eurozone would trigger a renewed wave of deposit withdrawal from Greek banks. This withdrawal of funding would have to be compensated for by additional financing from the ELA, the ECB’s emergency liquidity facility. However, it is questionable whether the ECB is prepared to increase the facilities lending limit to Greek banks, when things are getting worse instead of better. Should the ECB – in such a scenario – refuse to increase the available funds to Greek banks, capital controls, limiting among other things the withdrawal of deposits, look inevitable.

US – Non-farm payrolls remained strongly below expectations in March

The US labor market report for March disappointed markets. The most watched indicator - non-farm payrolls - increased by 126,000, slightly above half of the market's estimate of 245,000. Additionally, the numbers for the previous two months were revised downwards by 69,000 in total.
The bad news was somewhat alleviated by the unchanged unemployment rate at 5.5%, a post-crisis low, and stronger than expected wage gains.
Average hourly earnings increased compared to the previous month by 0.3%, significantly stronger than in the previous month (0.1%) and above the market's estimate (0.2%). In total, today’s labor market report was a continuation of a series of disappointing numbers from the US economy.
We do not believe that the mid-term positive trend of the US economy has reversed, but economic expectations on the market will remain subdued in the short term.

Public finances: Despite the adverse effects of ESA 2010 and Heta, the level of general government debt is lower than forecasted

On March 30, Statistics Austria announced the revised figures for Austrian state finances. The main result for 2014 was the lower than expected budget deficit and general government debt, at EUR 7.9bn (2.4% of GDP) and EUR 278.1bn (84.5% of GDP), respectively. The creation of the Hypo Alpe-Adria wind-down entity Heta accounted for EUR 17.9bn, of which EUR 4.5bn (1.4% of GDP) was calculated in the budget balance and EUR 13.4bn (4.1% of GDP) was added to the government debt.

Government debt and budget deficit figures for 2012 and 2013 were also revised downwards compared to the previously available estimates made on September 30. Statistics Austria referred to the changes in the effects of the reclassification of some companies to the state sector in terms of the implementation of ESA 2010 as the main reason for recalculation.
According to the new estimates, the budget deficit amounted in 2013 to 1.3% of GDP (instead of 1.5%), while government debt stood at 80.9% of GDP (previously 81.2%).