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The economic week ahead: Global data, Greek debt

Matt Quigley

Are SA firms becoming more optimistic? Can Greece avoid a debt default? Has China tamed inflation? Matt Quigley considers the global economy.

Are SA businesses becoming more optimistic? Can Greece avoid a messy debt default? Has China tamed inflation? Matt Quigley considers the global economy.

Is America’s economic recovery on track? Can Greece avoid a messy debt default? Has China tamed inflation? Are South African businesses becoming more optimistic? These are a few of the questions economists and investors are hoping will be answered in the week ahead.

United States
Several high-profile reports on the state of the world’s largest economy—particularly those offering insight into the state of America’s labour market—will capture the attention of global markets this week.

On Monday, the US Commerce Department will release factory orders data for January. Economists expect figures to show that the dollar value of new orders for both durable and nondurable goods fell 1.6% in the first month of 2012 after rising in both November and December of last year.

Also on Monday, the Institute for Supply Management will release February’s non-manufacturing composite index. Economists surveyed by the financial news and data provider Bloomberg expect to see a reading of 56.0 in February’s figures, down slightly from January’s 56.8 mark. Any reading above 50 indicates a general expansion in the sector.

On Wednesday, economists and investors will receive the first of three high-profile employment reports scheduled for the week ahead. The ADP national employment report is expected to show that America’s private sector added 203 000 jobs last month, up from the 170 000 new positions added in January.

On Thursday, America’s weekly jobless claims report is expected to show that 351 000 workers filed for new benefits in the week ended March 4, the same number as in the previous week. The four-week average for benefit claims, however, is expected to continue its convincingly positive trend downwards.

The week’s highest profile economic report will follow on Friday. Analysts surveyed by Dow Jones expect February’s monthly employment situation report to show that the world’s largest economy added 213 000 jobs last month, down somewhat from the 243 000 generated in January. The country’s unemployment rate is expected to remain unchanged at 8.3%.

Europe
Greece will remain in the spotlight this week as the troubled country’s government attempts to complete a “voluntary” debt swap with private-sector bondholders.

Under the terms of a recent agreement between the Greek government and the International Institute of Finance (IIF)—the body representing private holders of Greek bonds—investors would swap their existing securities for new paper with longer maturities and lower coupon rates. The effect of the swap would erase 53.5% of the nominal value of investors’ holdings.

Individual bond holders have until Thursday to sign up to the agreement. Greece has said that it will proceed with the swap if 90% or more of investors voluntarily agree to the deal. If the participation rate is between 75% and 90%, Greece has said it will consult with its external government funders on whether or not to proceed. If the participation rate is less than 75%, the entire deal will be scrapped. Much is at stake.

A voluntary debt swap is a prerequisite for Greece to receive a €130-billion bailout package from the European Central Bank, European Union and International Monetary Fund. Greek officials have warned that, without these rescue funds, the country cannot afford to make €14.5-billion in bond payments due later this month. Failure to cover bond payments would trigger the eurozone’s first ever sovereign default, an event many fear could precipitate another acute financial crisis.

Results of investors’ take-up of the offer should be available shortly after the 8pm GMT deadline on Thursday. If all goes to plan, and a large proportion of investors sign-on to the deal, European officials are expected to approve the €130-billion bailout package on Friday.

If Greece fails to achieve a high participation rate, the government may choose to enforce collective action clauses—legal provisions binding all bondholders to take part in the swap if a majority approves.

Such action could prompt the International Swaps and Derivatives Association to view the swap as coercive, rather than voluntary, and subsequently rule that a “credit event” has occurred. This would trigger the payment of credit default swaps, essentially insurance policies on Greek debt. The probability and implications of such an event remain unclear, but speculative articles are likely to dominate headlines throughout the week.

Asia
An Australian central bank meeting and Chinese inflation data dominate a full diary of economic events in both countries this week.

On Tuesday, the Reserve Bank of Australia will meet to consider the bank’s key cash rate. Policymakers left the rate unchanged at 4.25% last month, disappointing market expectations for a quarter-point cut, and are expected to do the same at this week’s meeting.

On Wednesday, the Australian Bureau of Statistics will release 2011’s final quarterly gross domestic product (GDP) figures. Economists expect the data to show that economic growth slowed to 0.7% in the fourth quarter from 1.0% in the third.

More lacklustre news may follow on Thursday when labour statistics are expected to show that Australia’s unemployment rate ticked upwards to 5.2% in February. Despite the rise in joblessness, the country’s labour participation rate—the proportion of working-age people either employed or seeking employment—is expected to have remained unchanged at 65.3%.

On Friday, markets will shift their focus northwards as Chinese officials release inflation, retail sales, fixed-asset investment and industrial output data. Investors are likely to pay particular attention to consumer inflation figures.

Price pressures plagued China throughout 2011, but began easing toward the end of the year. The annual rate of price rises fell from 5.5% in October to 4.2% in November and to 4.1% in December.

Economists had forecast further easing in January, but were surprised by an unexpected 4.5% jump in prices during the month. Most economists believe that this spike was temporary, however, and expect the lagged effects of China’s monetary policy tightening and diminished demand for Chinese goods overseas to have pushed this week’s reading down to around 3.5%, year-over-year.

South Africa
Business confidence measures and manufacturing data feature most prominently on South Africa’s economic calendar this week.

On Wednesday, the South African Chamber of Commerce and Industry (SACCI) will release last month’s reading for their business confidence index (BCI). The BCI dipped to a reading of 97.1 in January, its lowest level since May 2010, but most analysts expect to see a rebound in sentiment in February’s numbers.

A separate quarterly measure of business confidence will follow from the Bureau for Economic Research on Thursday but is likely to be overshadowed by Statistics South Africa’s release of January’s manufacturing figures.

South African manufacturers struggled throughout 2011, but many analysts are hopeful that this week’s data may show improvement. The sector grew by just 2.4% last year, but the Manufacturing Circle—an industry group—forecasts growth of 4.23% this year and 5.04% next. Supporting their argument, February’s purchasing managers’ index (PMI) data—an indicator of the manufacturing sector’s future economic prospects—rose to 57.9 last month, its highest level in two years.

  • Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is the chief executive of an economic research and forecasting firm and formerly worked for the US Treasury Department and Federal Reserve Bank of Boston. His blog on the South African economy can be found here.


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