Last Friday’s US payrolls data, one of the monthly American economic indicators markets keep an especially close eye on, fell short of expectations. Investors had anticipated around 200,000 new jobs in April, but only 160,000 materialised. Investors promptly marked down their interest-rate forecasts. Markets decided that a June hike is off the table, and interest-rate futures now imply only a 47% probability of any increase at all this year. In December last year, the Fed had pencilled in four rate hikes in 2016.
But investors may well have got it wrong. Payroll growth was always unlikely to keep up its recent rapid pace – we have had several months of more than 200,000 jobs being added – and the details of the report “suggest that the labour market has not lost any underlying momentum”, says
“It’s that time of the year again,” says Larry Elliott in The Guardian. Greece is running out of cash; there are violent protests in Athens against austerity measures; and eurozone finance ministers are gathering in Brussels to discuss what to do about it. At their meeting on Monday they opted, not for the first time, to put off the difficult decisions.
Ministers will convene again by 24 May to judge whether Greece can meet the terms of its third bailout package agreed last year. In order to receive this bailout, which amounts to €86bn, Greece is supposed to commit to achieving a primary budget surplus (before interest payments) of 3.5% of GDP.
But this is creating a growing rift between the Europeans and the International Monetary Fund (IMF). The IMF thinks there is no way Greece can manage a 3.5% of GDP primary surplus, and suggests a 1.5% surplus and a write-off of some of Greece’s debt instead. The overall debt pile is still worth 180% of GDP and the IMF thinks anything above 120% is unsustainable.
Without debt relief Greece is highly unlikely ever to get to grips with its borrowing. Long-term growth would help lower the debt-to-GDP ratio, but there is scant sign of it. The economy has shrunk by 25% in eight years, a fall equivalent to America’s during the Great Depression, and appears to have contracted again in the first quarter of 2016.
But concessions of this kind are “politically indigestible” for eurozone governments, says The Economist. This means the most likely outcome, “as always, is a fudge: an agreement that gives creditors just enough confidence to release the next slug of cash, without putting Greece’s finances on a sustainable footing”. Yet Britain’s referendum means the eurozone will have to “act with unaccustomed speed” in sorting this out, notes Elliott. Otherwise the issue will be “parked until after 23 June” and another “long, hot summer” will ensue.