1 IMF warns of gloomy Eurozone outlook (Katie Allen in The Guardian) The International Monetary Fund has warned the eurozone faces a gloomy economic outlook thanks to lingering worries over Greece, high unemployment and a banking sector still battling to shake off the financial crisis.
The IMF’s latest healthcheck on the eurozone found it was “susceptible to negative shocks” as growth continues to falter and monetary policymakers run out of ways to help. It called for an urgent “collective push” from the currency union to speed up reforms or else risk years of lost growth.
Near-term fillips such as the European Central Bank’s (ECB) massive money-printing programme, low oil prices and a weak euro could only spur the economy for so long, IMF staff said after its annual discussions with eurozone policymakers. In the Fund’s view the medium-term looks subdued because of “a chronic lack of demand, impaired corporate and bank balance sheets, and deeply rooted structural weaknesses”.
The IMF’s review said: “The recovery is strengthening, underpinned by lower oil prices and the ECB’s expanded asset purchase programme. But the medium-term outlook remains weak, weighed down by the legacies of insufficient demand, lagging productivity, and weak bank and corporate balance sheets.
It urged the ECB to stand ready to expand its quantitative easing (QE) programme, where it buys eurozone governments’ bonds using electronically created money, if financial conditions get significantly tighter and also said the scheme might need to go beyond September 2016, currently pencilled in as the end-date. The IMF is forecasting eurozone GDP growth of 1.5% this year and 1.7% next year.
2 China keeps buying shares as markets tank again (BBC) In an effort to prop up its stock market, Chinese regulators said they are continuing their purchase of shares. The move by China Securities Finance Corporation (CSFC) was made to dispel “rumours that the national margin trading service provider has backed off from stabilizing the stock market.”
Chinese stocks tumbled 8.5% earlier. That was their biggest drop in a single day since February 2007. The decline followed weak economic data on profit at Chinese industrial firms on Monday and a disappointing private factory sector survey on Friday. Investors were also worried by reports the CSFC had started to return – ahead of schedule – money it borrowed to stabilise the stock market.
China’s government’s rescue plan to keep the value of stocks, or equities as they are also known, has included a police crackdown on short-selling – betting on the decline of shares’ values – and a six-month ban on big shareholders selling stocks.
3 UAE moves to subsidy-free oil regime (Haseeb Haider in Khaleej Times) A high-powered committee is meeting at the Ministry of Energy in Abu Dhabi today to review and determine new oil prices, which will be implemented from August 1 in line with the government’s policy of zero subsidy on petroleum products.
Moody’s Investors Service and Bank of America Merrill Lynch, meanwhile, have welcomed the introduction of subsidy reforms in the UAE. In its credit report, Moody’s Investors Service said government finances – dented by the downturn in global oil prices – will receive a boost.
The Abu Dhabi government’s subsidies and transfers likely stood at Dh48 billion in 2014 or 5.8 per cent of GDP, but this largely represents the Abu Dhabi Water and Electricity Authority’s water and electricity tariff support, as the latter represented a third of total on-budget subsidies in 2011.
The remainder of the subsidies was accounted for by housing support, Northern Emirates support, industrial, social and other support. The fiscal benefits are therefore indirect, the research said. Energy subsidies and rapid domestic energy consumption growth pushed the fiscal breakeven oil price higher as Adnoc profit taxes remitted to the budget have been lower than otherwise.
“Despite progress in diversification, hydrocarbon revenues comprised 75 per cent of the UAE’s consolidated revenues in 2014,” said Mathias Angonin, an analyst with Moody’s Investors Service in Dubai. Moody’s expects a 27 per cent drop in consolidated government revenues, in line with a forecast for Brent crude prices to average $60 per barrel in 2015, versus $101 in 2014,
In 2015, the UAE will likely face a fiscal deficit of 2.3 per cent of GDP, its first deficit since 2010, and a decline from a 10.3 per cent surplus in 2014. Phasing out fuel subsidies will partly offset the negative effect of lower oil prices. Increases in gasoline prices will reduce the economic cost of subsidies the UAE public sector has provided to domestic consumers.