Greece, China, and World Economic Predictions

1. WSJ – The inspectors sent to Athens by Greece’s top creditors have recommended that the Greeks get the next payment of €8 billion from its 2010 bailout agreement. The decision was never in doubt because there wasn’t any other choice. If it buys time to fix Greece’s €350 billion debt disaster and save the euro, that installment of €8 billion might be more than just good money thrown after bad. French banks are among the most exposed in Greece, which is why the EFSF could come in handy. It also is why France is against deeper haircuts sought by the euro zone’s “German bloc.” The ECB won’t underwrite the EFSF, as some have suggested, and also doesn’t want to be on the hook for the €50 billion in Greek bonds it now holds as collateral against Greek bank borrowing.

2. WSJ – Mr. Yiping Huang is chief economist for emerging Asia at Barclays Capital.

Foreign investors are assuming that structural factors within China—falling property prices, rising bad loans or the like—will make for a hard landing. The greater threat is a double-dip recession abroad. Left to its own devices, China’s growth would soften to just above 8%, down from 10% or more in recent years but still able to create jobs.

The central government’s public debts stand at about 18% of GDP. Adding local government borrowing and contingent liabilities in other areas, total liabilities are probably about 60% to 80% of GDP. The government still has a large pool of state-owned assets, which are worth about 15 times GDP. Therefore Beijing does have sufficient resources to prevent a systemic meltdown of the economy, at least in the short term.

Chinese households’ leverage ratio is still quite low. Total mortgage loans are only about 15% of GDP and less than one year’s worth of households’ saving. House prices declined significantly in Shanghai in 2004 and in Shenzhen in 2008. While housing investment slowed visibly in both cases, there were minimal macroeconomic consequences.

3. The current views are that the Eurozone will have a mild or deep recession in 4-6 quarters. There are some economists and financial experts who think a recession can be avoided or that there will be stagnation.

The US is other having a double dip recession or a super-weak recovery.

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