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Economix: The Great Growth Disappointment

June 16, 2011 by Leave a Comment

Second verse, same as the first: The quarter when the economy was supposed to stage its comeback is looking just as bad as its disappointing predecessor.

We’ve had a slew of distressing economic data come in during the last few weeks. As a result, economists have been steadily downgrading their forecasts for economic growth in the second quarter. Today’s news is no exception; after a major bummer of an inflation report, Macroeconomic Advisers, the highly respected forecasting firm, lowered its annualized second quarter G.D.P. forecast to 1.9 percent.

For reference, when the quarter began, Macroeconomic Advisers was expecting 3.5 percent growth. And way back in February, the firm was projecting 4.4 percent.

We saw similar downgrades last quarter, too. That quarter began with a forecast of 3.5 percent, which slid downward as the weeks rolled on and ugly economic indicators rolled in. The Commerce Department’s latest estimate for growth that quarter was 1.8 percent.

Economists blamed temporary factors for that sluggish growth rate and forecast that growth would rebound in the second quarter. Unfortunately, though, the slide in forecasts for this quarter has been eerily similar to the slide in forecasts last quarter. Take a look:

DESCRIPTIONSource: Macroeconomic Advisers

The blue dots refer to forecasts for G.D.P. growth in the first quarter, and the pink dots show forecast for the second quarter. Their trajectories are remarkably close.

But don’t fret, dear readers: I’ve been hearing that “next quarter” will be better.

Article source: http://feeds.nytimes.com/click.phdo?i=f112e5c62e9baf0d4e7a05075723788f

Filed Under: Economy News Tagged With: , ,

Germany Proposes 7-Year Extension on Greek Bonds

June 8, 2011 by Leave a Comment

Setting itself firmly at odds with the European Central Bank, the German finance ministry has proposed extending maturities on Greek bonds by seven years, insisting that private investors must share the burden of any fresh financial aid to Greece.

The comments were made in a letter, dated Monday and released Wednesday, from the finance minister, Wolfgang Schäuble, to his European counterparts, the International Monetary Fund and the E.C.B.

“Any additional financial support for Greece has to involve a fair burden sharing between taxpayers and private investors and has to help foster the Greek debt sustainability,” he said in the letter.

He added that any deal among European finance ministers and the I.M.F. at a meeting on June 20 has to “lead to a quantified and substantial contribution of bondholders to the support effort,” and “can best be reached through a bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven years.”

The position is likely to frustrate the E.C.B., which has been positioning itself against moves to force private bondholders to book partial losses on their holdings.

According to analysts, the bank fears that credit agencies might see this as a default, and thus issue ratings downgrades. That in turn would mean that the E.C.B. would not be able to accept Athens’ debt as collateral for fresh loans, thus hampering attempts to provide liquidity to ailing Greek banks, which have become dependent on funds from Frankfurt.

The central bank also appears to fear possible spillover contagion in the European banking sector in the event of a Greek default.

In the letter, Mr. Schäuble said a return by Greece to capital markets next year was “unrealistic” and that the current international support programs for Athens were “insufficient to cover Greece’s financial needs over the program period.” He said Greece would need new funding in place by mid-July.

Analysts at Barclays Capital said in a research note Wednesday that “the concept of private sector burden sharing is receiving growing attention as a way of achieving political consent in countries such as Germany and Finland for a new Greek bailout package.”

They added that the concept has “yet to be fleshed out.”

The E.C.B. they said, would rather encourage private sector holders to re-lend the proceeds of redeeming Greek debt back to Athens on the same terms in what is called a “voluntary rollover,” which would presumably not trigger a default.

The letter has been disseminated just before Mr. Schäuble is expected to discuss the Greek situation with German lawmakers, some of whom have been demanding private sector involvement in any Greek debt restructuring.

A spokesman for the Finance Ministry in Berlin declined to comment on the letter and said that there was no fixed time scheduled for the minister’s meeting with lawmakers.

Article source: http://www.nytimes.com/2011/06/09/business/global/09bailout.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Unease About Greece Grows as S.&P. Downgrades Its Debt Again

May 10, 2011 by Leave a Comment

Standard Poor’s downgraded Greece’s debt once again, and Moody’s Investors Service put its rating on review for downgrade, compounding pressure on the government as it seeks to come up with a solution shy of a debt restructuring, including privatizing state enterprises, though there is resistance to that step.

Analysts and investors said they did not see how Greece could get its debt under control when output is slumping and there is little sign that efforts to restructure the economy are bearing fruit.

“Austerity is fine, but what you really need is investment and growth, and we just don’t see that,” said Jonathan Lemco, a sovereign credit analyst at Vanguard, the mutual fund company.

S. P. lowered its rating to B from BB –, reducing Greece to the same creditworthiness as Belarus, the lowest-rated countries in Europe. In a statement, S. P. noted increasing sentiment among governments in favor of giving Greece more time to repay 80 billion euros ($115 billion) in loans from the European Commission. But the commission would probably insist that private bondholders also accept slower repayment, S. P. said.

Even if creditors eventually get all of their money back, S. P. said, “such an extension of maturities is generally viewed to be less favorable to commercial creditors than repayment according to the original terms of the debt.”

The Greek government accused S. P. of responding to market and news media speculation.

“There have been no new negative developments or decisions since the last rating action by the agency just over a month ago,” the Ministry of Finance said in a statement. The downgrade “therefore is not justified.”

European political leaders as well as the European Central Bank have ruled out any kind of restructuring of Greek debt, saying it would undermine confidence in other countries like Portugal and Ireland and potentially create panic in financial markets. The strategy so far has been to play for time, in hopes that the economies of Greece, Portugal and Ireland will recover and make it easier for them to cope with their debts.

In Greece, the government is under pressure from its foreign creditors to raise money by privatizing state enterprises, but it is facing fierce opposition from powerful labor unions and critics within the governing Socialist party itself.

A program that is expected to go before Parliament next week is ambitious. It would authorize the selling of stakes in three utilities, the Greek railway, the racetrack and the national lottery. Also up for sale or lease are assets like disused facilities built for the 2004 Olympic Games and the site of the capital’s former airport, which the government of Qatar has expressed an interest in developing.

In all, the government hopes to raise 50 billion euros ($72 billion) by 2015 to help avert a default, although many analysts consider that figure to be overly optimistic. By pressing ahead, the government is seeking to demonstrate its resolve in meeting the terms of its bailout.

Indeed, representatives of the International Monetary Fund and the European Union are back in Athens to decide whether to release the next installment of the emergency loan package, estimated to be 12 billion euros. The fact that the Greek budget deficit for 2010 was revised upward, to 10.5 percent of gross domestic product from an estimated 9.5 percent, suggests that inspectors will be particularly strict this time.

Greek officials acknowledge in private that they may miss fiscal targets set by the I.M.F. because of a deeper-than-expected economic slump. In 2013, Greece will be required to raise as much as 30 billion euros ($43 billion) from the debt markets.

The government insists the privatizations will not be derailed.

“Commentators have doubted the Greek government’s resolve at every juncture of the crisis, and in each case the government has proven them wrong,” George Petalotis, a spokesman for the government, said in a statement.

The Greek labor unions, however, are determined to stop the sales, fearing that private ownership will lead to job cuts. They are lining up a barrage of protests, starting with a one-day general strike on Wednesday.

At the front line is Genop, the union representing workers at the Public Power Corporation, the state electricity company. Genop has threatened rolling strikes that could cause prolonged power reductions across the country just as the summer tourist season begins.

Niki Kitsantonis reported from Athens, and Jack Ewing from Frankfurt.

Article source: http://www.nytimes.com/2011/05/10/business/global/10privatize.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Portugal Asks Europe for Bailout

April 7, 2011 by Leave a Comment

José Sócrates, Portugal’s prime minister, said in a televised address Wednesday night that he had requested aid from the European Commission after recognizing that borrowing costs had become unsustainable.

“I had always considered outside aid as a last recourse scenario,” he said. “I say today to the Portuguese that it is in our national interest to take this step.”

He did not, however, specify the timing of any bailout.

Portugal will probably need about 75 billion euros ($106.5 billion) in assistance, according to a recent estimate by Jean-Claude Juncker, the prime minister of Luxembourg, who presides over meetings of euro zone ministers. Some analysts have suggested that the amount could be as much as 100 billion euros.

A Portuguese bailout has long been expected, but the speed with which things moved Wednesday appeared to have taken European officials in Brussels by surprise, leaving the timetable unclear. European leaders have been working to keep the financial contagion from spreading. Lisbon’s move now puts pressure on Spain, which has undertaken major economic reforms, budget cuts and a banking clean-up to stay out of danger.

In a statement the president of the European Commission, José Manuel Barroso, said Portugal’s request “will be processed in the swiftest possible manner, according to the rules applicable.”

If the pattern of previous bailouts is repeated, a team of officials will be sent to Lisbon to discuss the conditions of a bailout, which will then need to be agreed upon by European finance ministers. That, however, will probably not happen for several weeks.

Caught in a political crisis and facing tough refinancing hurdles, Portugal has also been hit by repeated downgrades by credit-rating agencies, sending yields this week on Portuguese government debt to their highest levels since the introduction of the euro.

Mr. Sócrates, who had been governing without a parliamentary majority, resigned last month after lawmakers rejected his latest austerity package. To break the political deadlock, Portugal is set to hold a general election on June 5.

In a separate televised address, Pedro Passos Coelho, the leader of the main Social Democratic opposition party, said that he backed the decision to seek outside help.

Adding to the pressure on the government, Portuguese banking executives warned this week that they did not want to take on more sovereign debt, urging the government to negotiate a bridge loan with its European partners.

Alongside that of Portuguese banks and companies, “the rating of the country has fallen like never before,” Mr. Sócrates said. “This is a particularly serious situation for our country.”

European ministers agreed last May to provide 80 billion euros in loans to Greece over three years as part of a package in which the International Monetary Fund provided an additional 30 billion euros. In November, they also agreed to a rescue package worth up to 85 billion euros for the Irish government.

Last month, leaders of the euro zone countries agreed to cut the interest rate charged Greece to help ease its debt burden. No such agreement was made with Ireland because of Dublin’s refusal to accede to French and German requests to raise its low corporate tax rate of 12.5 percent.

For Portugal, the emergency financing will ensure that it can meet its 20 billion euros of borrowing requirements for the year. But it is likely to set off debate over what conditions will be tied to any rescue package, at a time when Portugal struggles with record unemployment and an economy that is likely to contract 1.3 percent this year, according to a recent forecast from the Bank of Portugal.

Further, the government’s recent effort to push through an austerity package combining more spending cuts and tax increases prompted Portuguese residents to take to the streets last month in a sign of rising social unrest.

“Outside intervention will be positive for our treasury but could be a disaster for our economy,” said Diogo Ortigão Ramos, a specialist on fiscal legislation at a law firm, Cuatrecasas, Gonçalves Pereira. “Whoever forms the next government, our creditors will have the final word.”

Mr. Sócrates said that the decision to seek help was taken amid expectations that market conditions would continue to worsen for Portugal.

Analysts suggested that markets would respond cautiously on Thursday given the uncertainty surrounding the terms of any bailout.

“I expect that the news will bring only limited relief” to the yield spread between Portuguese bonds and those of Germany, the reference securities in the euro zone, said Tullia Bucco, economist at UniCredit, adding that “it will not refrain the European Central Bank from delivering a 25 basis point interest rate hike” this week.

Earlier on Wednesday, Portugal sold Treasury bills at a much higher cost than last month. It sold 455 million euros (about $646 million) in one-year Treasury bills at an average yield of 5.9 percent, compared with 4.33 percent yield when Portugal last sold such bills on March 16.

The national debt agency also sold 550 million euros of six-month bills at an average yield of 5.12 percent, compared with a yield of 2.98 percent at a previous auction on March 2. The Treasury bill sale came after Moody’s on Tuesday cut the sovereign rating of Portugal for the second time in a month. On Wednesday, Moody’s also downgraded by one or more notches the senior debt and deposit ratings of seven Portuguese banks.

Stephen Castle contributed reporting from Brussels.

Article source: http://www.nytimes.com/2011/04/07/business/global/07euro.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

S.&P. Downgrades Portugal and Greece Again

March 29, 2011 by Leave a Comment

PARIS — Standard Poor’s said Tuesday that it had cut its sovereign credit ratings for Portugal and Greece, piling further pressure on the countries as they both seek to come to grips with a heavy debt load and weak economies.

SP cut Portugal’s rating to BBB- from BBB, with a negative outlook — its second downgrade in less than a week. BBB- is the lowest investment grade rating at the agency, or just one notch above junk.

The Portuguese government collapsed last week after it was unable to push through Parliament further measures to plug its deficit and fend off the need for outside aid. The country now faces weeks of political uncertainty before general elections.

SP said the country would probably need an international bailout. Lisbon has about €9 billion, or $13 billion, of bond redemptions coming due in April and June. Analysts suggest that Portugal’s current cash position is sufficient enough to cover the April redemption, but not the one in June.

The Greek rating, already junk, was cut by SP to BB- from BB+ amid concerns the country may be required to restructure its debt.

European stocks were mostly lower after the announcement and the yields on benchmark euro-zone government bonds pushed higher. The yield on the Portuguese 10-year note hit 7.8 percent, around its highest level since the inception of the euro, and the Irish 10-year note was 9.7 percent.

Investors are awaiting the results of a health check on Irish banks, due to be released by the Irish central bank Thursday, and an announcement from the European Central Bank about a new facility to support struggling banks — initially Irish banks in particular. That is expected to be announced soon after the Irish stress tests.

The euro was broadly steady, at $1.4081, from levels late Monday.

SP said that Portugal was likely to have to turn to the European Stability Mechanism, which is being set up by European countries.

Unlike, Greece, it might be able to avoid restructuring its debt, but the agency added that the government’s unsecured debt would probably be subordinated to future loans from the mechanism.

The agency retained a negative outlook on its rating as the “macro-economic environment could weaken beyond our current expectations. It also said “a political impasse could undermine the effective implementation of Portugal’s adjustment program.”

SP had previously cut Portugal’s rating on Friday, warning that it may do so again once the details of the new mechanism were announced. Its rival, Fitch Ratings, also cut Portugal’s ratings the same day after the government collapsed.

In the case of Greece, the agency said that the downgrade reflected the view that a sovereign debt restructuring was likely and would probably be a condition for Athens to borrow from the Union’s mechanism.

Likewise, senior unsecured Greek debt would be subordinated to loans from the fund, the Standard Poor’s credit analyst Marko Mrsnik said.

The agency also cited “growing risks to Greece’s budgetary position.” It said recently released provisional data on the government’s 2010 balance indicated “a relatively higher cash deficit and larger outstanding spending arrears than planned.”

That suggests that last year’s deficit could exceed the government’s target of 9.6 percent of gross domestic product. It also said the government was unlikely to hit its 2011 budget deficit target of 7.5 percent of G.D.P.

“We believe that the government has not tightened spending controls sufficiently to prevent further accumulation of arrears in 2011,” it said. “Government revenues have been underperforming budgetary expectations, most recently in the current quarter.”

It added that prospects for better tax collection remained uncertain due to the impact of weaker domestic demand and persisting inefficiencies of the tax administration.

Article source: http://feeds.nytimes.com/click.phdo?i=9355786b9ce06731c7ed5fc1987c91ee

Filed Under: Business News Tagged With: , ,
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