Week in review: Greece and EU reached a deal to extend the bailout to the end of April. In a letter sent to the Eurogroup, Finance Minister Varoufakis listed a number of reform that the Government plans to implement. On the fiscal front, these measures include fighting tax evasion, improving the public finance management particularly the Budget implementation, improving the management of revenue through appropriate staffing, set up controls in public spending including identifying abuse of the social security system, modernising the pension system. Other areas of intervention include fighting corruption, removing barriers to competition, improving product market legislation. The Government also wants to raise the minimum wage gradually over time and to push through a package to support people living in poverty, but in line with fiscal limitations. The letter was sparse in detailed measures, which suggests that much remains to be decided in terms of actual policy before EU countries agree to release the tranches that are due under the current bailout programme. Furthermore the IMF and the ECB have already shown some skepticism about the feasibility of these measures. This means that this story is by no means over and we will probably come back to it frequently in the coming weeks and months.
Turning to data, the details of Portuguese GDP confirm that domestic demand fell 0.4%qoq in Q4, due to a decline in investment and public consumption and a deceleration in private consumption from 1.3%qoq in Q3 to 0.2%qoq in Q4. Turning to the external sector, exports accelerated in Q4, from 0.7%qoq to 3.3%, possibly due to the recovery in Portugal’s European trading partners but also on the back of the euro’s depreciation.
In the euro area, the European Sentiment Indicator (ESI) rose to 102.1, a seven-month high, as the economy appears to be making its way out of stagnation. France, Italy and Spain contributed the most to the rise. Worryingly, the German ESI fell again, to the lowest level since July 2013. Confidence indicators at this stage appear to suggest that the surge in activity in Q4 may moderate in the first quarter in Germany.
- Tuesday: European February inflation and January unemployment rate released. Inflation should remain in negative territory due to oil prices
- Thursday 5 March: ECB meets on monetary policy.
- Friday 6 March: US non-farm payrolls and wages: the Fed’s decision to raise rate before mid-year will hinge on whether employment is growing fast enough and inflation/wages are picking up.