Oil drops for 5th week; US crude in biggest monthly fall since 2008

US crude posted its biggest monthly drop since the 2008 financial crisis on Friday after a string of losses in July triggered by China's stock market slump and signs that top Middle East producers were pumping crude at record levels. 

PHOTO: BLOOMBERG

AUG 3, 20158:59 AM

[NEW YORK] US crude posted its biggest monthly drop since the 2008 financial crisis on Friday after a string of losses in July triggered by China's stock market slump and signs that top Middle East producers were pumping crude at record levels.

A higher US oil rig count for a second straight week added to the market's downside Friday despite a weaker dollar, which would normally support commodities.

Heavy hedging activity in gasoline and diesel futures ahead of front-month contract expiration dominated play on the petroleum complex, diverting some attention from crude.

Oil prices fell for a fifth straight week.

US crude settled down US$1.40, or almost 3 per cent, at US$47.12 a barrel. It slid more than 2 per cent on the week.

Through July, US crude was down 21 per cent, its largest monthly decline since October 2008, when oil had an epic collapse at the outbreak of the financial crisis.

Brent settled down US$1.10, or 2 per cent, at US$52.21 a barrel. It lost 5 per cent on the week and 18 per cent on the month.

The sell-off continued in post-settlement, with both US crude and Brent down more than 3 per cent.

July's oil-price drop was spurred by a stock market tumble in top energy consumer China and growing global oversupply.

A Reuters survey on Friday showed the Organization of the Petroleum Exporting Countries, which includes Saudi Arabia and other big Middle East producers, pumped over 32 million barrels per day in July, up 140,000 bpd from June.

Commerzbank's head of commodities research Eugen Weinberg said Opec had to cut production to avoid even lower prices, expressing hope for "a stricter quota discipline at its December meeting".

Bank of America Merrill Lynch said in a note Brent could be at a discount to the benchmark US light crude, West Texas Intermediate, by spring next year, if US gasoline demand remained on a tear. Brent is now at nearly a US$5 premium to WTI. "The European refining system is not geared towards gasoline and neither are medium sour barrels," it said. "As such, WTI may have to temporarily trade above Brent and Dubai next spring to ensure there is enough gasoline to go around." Industry firm Baker Hughes, meanwhile, said US drillers added five oil rigs this week on top of 21 last week.

Higher rig counts worry the market as they indicate more output. US government data on Friday showed production dipped in May before rising again in June.

REUTERS

    

Automakers buckle up for more China woe after stock crash saps sales 

New vehicles are seen at a parking area of an automobile factory in Wuhan, Hubei province, on August 1, 2015. 

PHOTO: REUTERS

AUG 3, 20157:14 AM

[BEIJING] Automakers in China may be forced to come up with more drastic mitigation measures when July sales results released from this week likely reveal a fourth month of contraction after a stock market crash sapped consumer sentiment.

Many Chinese who put money in the mainland bull market in the first half of 2015 had to delay big-ticket purchases like cars, analysts said. But a crash from mid-June erased as much as US$4 trillion in share value in under a month. What is left of their money is now locked in stocks as many try to avoid losses.

Sales in the world's biggest auto market have been hit by declining sentiment as the economy grows at its slowest in 25 years, prompting cost-cutting and discounts. But the crash likely left July sales falling more than June's 2.3 per cent, analysts said. "Car manufacturers are biting their nails as they wait to see July sales and the full impact the stock market crash really had," said a Shanghai-based executive at a major US carmaker.

China's auto manufacturing body said it more than halved its 2015 sales forecast because of the crash's impact on sentiment, while consultancy Automotive Foresight last week demonstrated a correlation between money locked in stocks and falling sales.

Audi AG sales chief Christian Klingler, in a conference call on Thursday, said China will turn "into a bumpy road in the next few months".

The government took several measures to stabilise share prices, but they continue to fluctuate wildly with last week seeing the steepest single-day fall since 2007.

Analysts expect car sales will continue to be weak at least until stocks stabilise as fear of another tumble cloud consumers' future finances in uncertainty.

MARKET CHILL

Automakers, many of whom have already flagged slowing sales, start reporting China figures on Monday, beginning with Japan's Toyota Motor Corp. The China Association of Automobile Manufacturers releases overall market data next week.

Toyota and compatriots like Honda Motor Co Ltd look likely to lead the pack due to strong sales of new sports utility vehicles (SUVs) as many middle-class Chinese trade up from sedans.

Automakers without top-selling SUVs, such as Volkswagen AG and General Motors Co, have fared less well and may need to further cut costs and prices, analysts said. On Wednesday, Peugeot SA said it would review costs.

Mazda Motor Corp, one of this year's front-runners, said it is concerned over-capacity may force automakers to offer more buying incentives and even sell at a loss. "The rate of growth is stalling... On top of that is the stock market fall. Consumers are mentally chilled," said Masahiro Moro, Mazda's managing executive officer and head of global marketing.

"Up to now it's been growth and growth." An executive at Audi said automakers need to expand their financing, insurance and used car businesses. "(Dealers) reflect that the glory days are over of selling cars above list price," the executive said. "It's now a competitive market like Western Europe."

REUTERS

      

Meet China's stock rescue chief: he never saw the crisis coming

Investors react in front of screens showing stock market movements at a brokerage house in Shanghai on July 29, 2015. 

PHOTO: AFP

AUG 3, 20157:24 AM

[SHANGHAI] After China's stocks crashed in June, the government put more than US$400 billion at the disposal of a little-known state agency, the China Securities Finance Corp, headed by an academic and bureaucrat named Nie Qingping. It was told to save the market.

The agency's unique mandate is to intervene in the market to buy stocks, with money borrowed from the central bank and other sources, in order to help prop up share prices. With the recent volatility evidenced by another crash on July 27, its success so far isn't readily apparent.

Mr Nie, the 53-year-old chairman, hasn't given interviews on his emergency role, and the government hasn't spelled out exactly what discretion Mr Nie and his agency have when executing orders from above. Four weeks into the new role, the picture emerging from Mr Nie's published books and commentaries, as well as interviews with fellow academics, is of a professor with 25 years of experience watching stock manias - who still got blindsided by China's latest crisis.

"The latest rally has the characteristics of a structural bull market," Nie wrote in an article in March, joining a chorus of officials and state-media commentators talking up the market's prospects. As one of the architects of China's move to allow margin financing, in which people borrow money to buy stocks, Mr Nie played down concerns that debt-funded stock purchases were rising too quickly.

Now, Mr Nie faces a "Herculean task" as head of an agency that never expected to be handed the role of market savior, according to Liu Yuhui, a Beijing economist and a researcher at the Chinese Academy of Social Sciences.

TRICKLING FOUNTAIN

China Securities Finance was set up in 2011 to provide liquidity for brokerages offering margin financing. Housed on the 15th floor of a building in Beijing's financial district, in an office where water trickles over traditional Chinese rock sculptures, Mr Nie and his 70-odd staff got access to between 2.5 trillion yuan and 3 trillion yuan (S$89 billion to S$107 billion) for the rescue, according to people familiar with the matter.

"The role of stock bailout most certainly wasn't their mandate when they started China Securities Finance," said Fraser Howie, a co-author of Red Capitalism, a book on China's financial system.

"It was set up to do one job, and clearly has been co-opted or coerced - you can choose your verb - to go and do another job."

VOLATILITY SURGE

The money on tap is in the form of credit from commercial lenders and from the People's Bank of China, which has its headquarters about a mile away, as well as from the proceeds of bond sales. It's designated for buying shares and mutual funds, as well as the agency's usual role of liquidity for margin finance.

Since China Securities Finance started buying on July 6, a measure of volatility in stocks has surged to nearly a 20-year high.

On July 27, the Shanghai Composite Index plunged 8.5 per cent, the most since February 2007, as investors feared that the government was pulling back from its rescue efforts.

Details of how China Securities Finance now operates, how much liquidity remains at its disposal, and how it chooses which stocks and mutual funds to buy haven't been released officially. Neither Mr Nie nor the agency responded to requests for comment.

The agency first bought blue-chip companies before also targeting mid- and smaller-sized companies on July 8, according to statements by the China Securities Regulatory Commission, which oversees the agency.

STOCK MANIA

"Its opacity has already led to extreme volatility and confusion in the stock market," said CASS's Liu, who also works for brokerage GF Securities Co. "Investors deserve to know more about it."

As a junior official, Mr Nie received training at the London Stock Exchange before he was dispatched by the People's Bank of China to help investigate a bout of stock "mania" in Shenzhen in 1990, which ultimately led to the creation of a formal stock market.

People had stopped working to speculate on shares, according to his book The Long On China, a history of the stock market. Investigators determined the causes were high dividend payouts, a lack of limits on daily share-price moves, and a limited supply of stocks, he wrote.

Mr Nie headed China's task force that designed the rules for short-selling and margin financing, which China began allowing in 2010.

BULL RUN

In an article published by Caijing magazine on March 20, Mr Nie played down concerns about margin financing's role in the latest stock rally. He wrote that calling the run-up in stock valuations a "leveraged bull run" was inappropriate, since investors saw value in stocks and were borrowing to invest in blue-chip companies.

The article came after margin financing had more than doubled in the previous six months, with the Shanghai stock index leaping 58 per cent.

Besides lecturing at universities - Nie is accredited as a professor at at least two - his resume also includes a three- year stint at China Everbright Holdings Co.

His latest book, Theory And Practice Of Securities Lending, published in March, does warn of hidden risks in over-the-counter margin finance, calling it a "black box" in which brokerages sometimes offer funding to customers who aren't qualified for it. The book also warned that some stocks had gained too much and that some investors could face margin calls because their portfolios were overly concentrated.

Still, the book gave a bullish view on how securities finance would develop, saying that in five years' time, margin finance and short-selling would account for close to 20 per cent of the value of A-share turnover, up from 10 per cent.

An academic who has known Mr Nie since 1998 when Mr Nie was at Everbright and worked with him at the China Securities Regulatory Commission, He Jia, called him nice, smart and "maybe more of an academic than a government official," because of the volume of his academic writing.

While Mr Nie's in the spotlight, that doesn't mean he's in control, said Mr He, who's a finance professor at the Chinese University of Hong Kong.

"Things in China are never dependent on one person," he said. "It's always a plan designed by the very top."

BLOOMBERG

PM Lee: Sustaining 3% to 4% growth for two to five years would be 'outstanding'

By

Kenneth Limkenlim@sph.com.sg@KennethLimBT

AUG 2, 20159:29 PM

SUSTAINED economic growth of 3 to 4 per cent per year for two to five years would be "an outstanding achievement", Singapore Prime Minister Lee Hsien Loong said in an interview with diplomat Chan Heng Chee aired on local television.

Reasoning that with the workforce growing at one to 2 per cent per year, and productivity hopefully at 1.5 to 2 per cent per year, annual economic growth of 3 to 4 per cent could potentially be achieved, Mr Lee said.

"But if you ask me, on a sustained basis, for two to five years, if I could do that, I would be over the moon," Mr Lee said.

The prime minister said that Singapore has run out of "easy ways" to grow its economy. Specifically, Singapore had historically reduced unemployment, and then increased its working population by importing foreign labour and getting women and seniors into the workforce. But with those avenues mostly exhausted, productivity must now be improved. Moreover, the country must not be satisfied with a slow rate of growth as this affects the vibrancy of society, Mr Lee said.

"If you go to one or 2 per cent growth, life is not getting worse, but life will not be getting better in the same way. If you look at the countries in that position - Japan, the European countries, America after the global financial crisis for some time - you get an angst, a fractiousness, a despondency, a whole gloom settles over the society. Why is it next year is not better than this year? We want so many things to be better - poor people to be less poor, healthcare to be improved, schools and housing to be improved. The one way to do that is to grow. If you do not grow there is no way to make ourselves better."

    

From open sewage to high-tech hydrohub, Singapore leads water revolution

Singapore River at Boat Quay. 

PHOTO: REUTERS

AUG 3, 20159:07 AM

[SINGAPORE] Fifty years ago Singapore had to ration water, and its smelly rivers were devoid of fish and choked with waste from shipbuilding, pig farms and toilets that emptied directly into streams.

But it's a very different story today. The world's most densely populated country now collects rainwater from two-thirds of its land, recycles wastewater and is even developing technology that mimics human kidneys to desalinate seawater. "In about a lifetime, we have transformed Singapore," said George Madhavan, an engineer who has worked for the national PUB water agency for 30 years and is now communications director. "It's not rocket science - it is more political will ... The key success factor is really government - the leadership to pull different agencies together to come up with a plan ..." As governments around the world wrestle with water crises from droughts to floods, many are looking to the tiny Asian city-state of Singapore for solutions.

In many countries, a flood prevention agency focuses on quickly draining away storm water, while another manages drinking water.

In Singapore, PUB "manages the entire water loop", Mr Madhavan told the Thomson Reuters Foundation.

Its aim is to capture every drop of rain it can and recycle as much used water as possible. "That means that ideally, we don't sell you water. We rent you water. We take it back, we clean it. We're like a laundry service. Then you can multiply your supply of water many, many times," Mr Madhavan said. "The water that you drink today is the same water that dinosaurs drank. We don't create or destroy water. It just goes around. So we are using engineering to shorten the loop."

Following independence on August 9, 1965, the new 700 sq km country relied on three reservoirs and water imported from neighbouring Malaysia.

Today, it collects rainwater through an 8,000-km drain network that empties into 17 reservoirs, and reclaims used water from a deep tunnel sewerage system up to 60 metres below ground.

Singapore, which is recognised as a global leader in water technology, set up a water planning unit in 1972. Unlike Bangkok, Kuala Lumpur and Tokyo, it does not have land outside the city to act as huge catchment areas.

Eleven government agencies joined up from 1977 to 1987 to clean the heavily polluted Singapore River and Kallang Basin in the main commercial area.

The city relocated 610 pig farms and 500 duck farms (later barring such farms), transferred 5,000 street hawkers to food centres, and moved boats east to the Pasir Panjang area.

Mr Madhavan said the biggest challenge was relocating 46,000 squatters living in squalid conditions without sewers into housing blocks.

More than 260 tonnes of rubbish were removed, the area was landscaped, and in 1987, fish returned to the waters.

Worried about pollution, authorities initially kept people away from the waterways. "We even had warning signs about crocodiles (which had been spotted in the reservoirs) to keep people away," Mr Madhavan said.

Singapore has since shifted its stance, opening waterfront areas such as Marina Reservoir, where people kayak, bike and fly kites against a backdrop of the city's highrise skyline.

Singapore's "four national taps" supply 400 million gallons each day for 5.4 million people.

The island's two natural sources are rain and, through an agreement that expires in 2061, up to 250 million gallons per day from Malaysia's Johor River.

As climate change makes nature's sources less reliable, Singapore is focusing on its reclaimed and desalinated water taps.

NEWater, introduced in 2003, is the name for used water from the sewerage system, treated and further purified through microfiltration, reverse osmosis and ultraviolet disinfection.

Meeting 30 per cent of demand, NEWater is potable but mainly used by industries and during the dry season to top up reservoirs. Singapore aims for NEWater to meet 55 per cent of demand by 2060.

The island's first desalination plant opened in 2005, and desalinated water meets a quarter of demand.

Desalinated water and NEWater are fairly independent of the weather but on the downside, require more energy to produce, Mr Madhavan said.

Conventional reverse osmosis requires 3.5 to 4 kilowatt-hours (kWh) to squeeze seawater through a membrane to make 1,000 litres of freshwater.

Singapore is now building a demonstration plant to scale up tests on electrochemical desalting, which uses an electric field to pull salt out of seawater. Mr Madhavan said PUB hopes to halve energy use.

University researchers are also developing "the holy grail of desalination" - technology that imitates the kidneys, he said. "This will take some years ... They more or less understand how the kidney works to do desalting. But it's now how to engineer it, how to build it, the enzymes that are key to this process."

REUTERS

Singapore at 50 seeks smart city makeover as old industries fade

Aerial view of Singapore. 

PHOTO: ST FILE

AUG 3, 20158:13 AM

[SINGAPORE] Roads filled with driverless cars, every home linked with fiber-optic cable, gardens in the sky, shining towers of scientists creating the future. Singapore is at it again, trying to plan the next leap up the development ladder.

For 50 years, Singapore has punched above its weight class, thanks to a run of political stability, long-term planning, transparency and openness to investment. Along the way, the tiny Southeast Asian nation turned from a center of colonial administration and trading into a major container port, an oil- refining hub, an electronics manufacturer, and a banking center.

Now as the nation passes the half-century mark on Aug 9, Singapore's challenges have evolved. Its founding father, Lee Kuan Yew, died this year, and his son, Prime Minister Lee Hsien Loong, is betting billions of dollars on a "Smart Nation" plan to take the city state to the next level.

His task is to take a nation where more than 45 per cent of the resident labour still do non-professional jobs like cleaning and staffing assembly lines, and turn it into a global centre for research and innovation.

If he succeeds, the country could become a model for other advanced nations that share similar problems - rapid immigration, reliance on imported low-cost labour, an aging population, lackluster productivity, and rising social and health care costs.

"This is ultimately a long-term vision, there is still a significant proportion of the local labour force that may not have the necessary skill set," said Irvin Seah, a Singapore- based economist at DBS Group Holdings Ltd who was part of a government-wide economic review in 2001. "We have often been a test-bed for many interesting economic development policies."

SPEED OF DEVELOPMENT

A glimpse of that vision can be seen in Jurong Lake District, a 360 ha development area in the island's west where the government has installed more than 1,000 sensors to monitor and control everything from vehicles to trash cans. The sleepy fringe of the city is being transformed into a second central business district, with shiny waterfront condominiums, a new Science Centre and the terminal for a planned high-speed railway to Kuala Lumpur.

"Singapore has changed completely, the government does things very quickly," said Ho Soon Chye, a 60-year-old security officer who earns S$7 an hour guarding a Chinese temple in the city's financial district. "But things are so much more expensive. It's hard for those who don't earn a lot, and there are more foreigners taking our jobs."

Mr Ho's generation grew up in a nation where people's lives visibly improved under the iron control of a government that made policy for almost every major industry and venture in the state. To make the transition, Mr Lee needs to make the island's workers more efficient and more innovative and that may mean relaxing that control.

GROWTH MODEL

"The Singapore growth model will have to move beyond the institutional strength of the government to human capital," said Deyi Tan, a Singapore-based economist at Morgan Stanley. "Although the high level of government involvement has been an important feature of the growth model, it increases the economy's vulnerability to potential policy group think and erroneous sector bets."

Recent attempts that focused on attracting capital, rather than investment, have had mixed results. The nation has become a regional center for wealth management. The opening of two casinos after ending a four-decade ban boosted growth to a record in 2010.

At the same time, the influx of wealthy foreigners helped widen the nation's income gap to among the biggest in developed countries, while casino gaming revenue from high-end players have tumbled after a crackdown on corruption in China.

SMARTER ORGANISATION

Meanwhile, Singapore's traditional pillars of growth are cracking. Electronics exports have repeatedly declined in recent years, labor productivity fell for a fourth quarter in the first three months of the year and the economy contracted the most since 2012 in the quarter ended June 30.

The latest economic restructuring began in 2010 and has focused on slowing the inflow of cheap foreign labor and urging companies to produce more with fewer workers.

"We will stop talking about productivity and start talking about efficiency," said Wai Ho Leong, a Singapore-based economist at Barclays Plc. "It's about smarter organisation of the existing resources. The economy is now diverse enough to support pushing into more interesting areas."

Tech Parks In Singapore, those areas have gleaming tech parks with names that announce their focus - Mediapolis, Biopolis, Fusionopolis - which have lured entrepreneurs from overseas to help turn the city into a cauldron of innovation.

"I was a huge critic of Singapore, I felt there was no freedom of expression and in innovation that's very important," said Saibal Chowdhury, an Indian national who decided not to move to Singapore 16 years ago while working for Hewlett-Packard Co in the city. "I see the opportunity now and that's the difference Singapore has made."

His startup, Urbanetic, gives city planners in poorer municipalities access to 3D-imaging for urban planning, and is awaiting approval on a S$500,000 convertible loan from the Singapore government. In many cases, the government is trying to step back and become a facilitator and investor, rather than trying to drive the innovation.

MATURING INVESTORS

"In the 90s they may have wanted to do the investment themselves," said Kay-Mok Ku, a partner at venture capital firm Gobi Partners who helped manage a S$500 million interactive digital media fund in 2006.

"Today we see them more maturing as an ecosystem builder." Venture capital deals in the nation increased to US$454 million in 2013 from US$12 million in 2007, according to Morgan Stanley.

Lee's administration committed S$16.1 billion to research and development from 2011 to 2015, a 20 per cent increase over the previous period. Vertex Venture Holdings, a unit of state- owned investment company Temasek Holdings, has spent more than US$1.2 billion investing in more than 350 startups globally. Temasek in July announced a joint US$200 million venture debt financing fund with United Overseas Bank Ltd.

Advanced manufacturing, applied health sciences, smart and sustainable urban solutions, logistics and aerospace, as well as Asian and global financial services can help drive the city's growth in the coming years, the Singapore Economic Development Board said in an e-mailed response to questions. Its corporate investment arm, EDBI, is pursuing opportunities in sectors including digital health, energy efficiency, the Internet of Things and Robotics, the unit said.

"We are starting from a position of strength with global leaderships in multiple sectors," the EDB said. "To take us to the next stage, we will have to grow our innovation capacity by leveraging the capabilities of our local small and medium enterprises and forging deeper collaborations between local and international companies."

GREAT EXPERIMENT

To bring its Smart City ambitions to fruition, the government partnered with Dassault Systemes as part of a S$73 million project to create a virtual 3-D copy of Singapore so government agencies, citizens and businesses can develop urban technologies. The company is banking on Singapore to prove Smart Cities can be a reality.

"People don't believe, they have to see," Dassault Systemes Chief Executive Bernard Charles told reporters on July 16. "Many countries and cities of the world are looking at Singapore as a great experimentation."

BLOOMBERG

China final Caixin manufacturing PMI falls to 2-year low of 47.8 in July

AUG 3, 20159:52 AM

[BEIJING] China's factory activity shrank more than initially estimated in July, contracting by the most in two years as new orders fell and dashing hopes that the world's second-largest economy may be steadying, a private survey showed on Monday.

The final Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) dropped to 47.8 in July, the lowest reading since November 2011, from June's 49.4.

That was worst than a preliminary "flash" reading of 48.2 and marked the fifth straight month of contraction, as indicated by a reading below 50.

New orders reversed into contraction last month after growing in June, while factory output shrank for the third consecutive month to hit a trough of 47.1, a level not seen in more than 3-1/2 years.

The survey showed gloomy business conditions were forcing companies to downsize, causing employment to fall for the 21st straight month. Factories were also forced to cut final prices to a six-month low due to increased competition for new business.

China's official factory activity survey released on Saturday showed growth at big manufacturing companies unexpectedly stalled in July as demand at home and abroad weakened, reinforcing views that the economy needs more stimulus as it faces fresh risks from a stock market slump.

The official Purchasing Managers' Index (PMI) stood at 50.0 in July, compared to the previous month's 50.2. The official survey focuses on larger companies.

The weaker-than-expected private and official readings will stoke expectations of more economic support measures, which have intensified in recent weeks as Beijing struggles to avert a full-blown stock market crash that could do further damage to the already cooling economy.

REUTERS

Tsipras battling on all sides finds no solace in Greek economy

Greek Prime Minister Alexis Tsipras sits in the Parliament during Prime Minister's Question Time, in Athens, Greece, on July 31, 2015. 

PHOTO: EPA

AUG 3, 20159:32 AM

[ATHENS] Alexis Tsipras has faced off against the International Monetary Fund, fellow euro-area leaders and even his own lawmakers in his battle to protect Greece. The economy is proving just as big a hurdle.

With one-quarter of the population without a job, prices falling and manufacturing shrinking, the Greek prime minister faces a mammoth task to revive growth. Data this week, including the latest unemployment statistics, will probably confirm the picture of an ailing economy mired in deflation.

Compounding the pressure, capital controls have restricted the functioning of the economy, which is set to be the only euro-area nation to shrink this year. The shutdown of banks came after Tsipras ended talks with creditors on a bailout to hold a referendum, then reversed course to enter a deal on funding.

"Greece will need to get used to the idea of a recession again," Alessandro Bee, a strategist at Bank J Safra Sarasin, said by phone from Zurich. "Impending austerity measures will make the economic situation even worse" and "hopes of a rapid recovery are probably futile," he said.

Greek gross domestic product has contracted more than 25 per cent since 2007 as two bailouts with austerity conditions including salary cuts took their toll.

HIGH COSTS

Unemployment was close to 26 per cent in April and a report Thursday will probably show little change on that. Markit will publish its factory index for July on Monday and the statistics office will release inflation data on Friday, precursors to second-quarter GDP the following week.

"The latest financial and political upheaval in Greece leaves the domestic economy in a state of flux," Eurobank Ergasias SA economists Theodoros Stamatiou and Stylianos Gogos said in a note on July 30.

"The present situation sows the seeds for another recessionary year." The economy has shrunk for two straight quarters and may contract as much as 4 per cent this year, according to a July 29 report from the parliamentary budget office.

While banks reopened on July 20 with limited services and the stock exchange is set to restart trading on Monday, the office estimates the controls cost the economy between 4 billion euros (S$6 billion) and 10 billion euros. That compares with 2014 output of 179 billion euros.

UNCERTAIN FUTURE

Greece's international creditors have been back in the country since last week and Finance Minister Euclid Tsakalotos met some of their representatives on Friday to discuss the austerity measures demanded in return for the next bailout. Mr Tsakalotos highlighted the positive climate of the talks, a stark contrast to his predecessor, Yanis Varoufakis, who regularly clashed with his European counterparts and quit after tension escalated.

"Unemployment will remain at a high level because of the recession into which Tsipras and Varoufakis have pushed Greece with their reform reversals," said Holger Schmieding, chief economist at Berenberg Bank in London. He forecasts that once a new deal is in place, "pro-growth reforms" will help lift confidence and "give way to a new upturn in late 2015."

But even with a resumption of growth, the impact on the labour market may be limited. Economists in Bloomberg's monthly survey in July forecast an average jobless rate of 26.3 per cent this year and next.

For David Owen, an economist at Jefferies International Ltd in London, interpreting all the moving parts is proving difficult: "we really do not know where we go from here," he said in a July 30 report.

While there are positives - the next round of austerity won't be as severe as previous cycles and the euro-area economy is recovering - the banking system remains in a state of disrepair.

That "must pose a severe problem for many households and companies," Mr Owens said. "And, anecdotally since the referendum, there are more stories of people and firms not paying taxes or starting to re-locate to other countries. Capital is certainly likely to leak overseas." -With assistance from Deborah L Hyde and Mark Evans in London.

BLOOMBERG

Germany wrong to propose temporary 'Grexit': French minister

French Finance Minister Michel Sapin. 

PHOTO: REUTERS

AUG 3, 20157:03 AM

[BERLIN] French Finance Minister Michel Sapin said in an interview on Sunday that his German counterpart Wolfgang Schaeuble was "wrong" to propose a temporary withdrawal from the euro for debt-laden Greece, evoking "a clear disagreement".

"I think Mr Schaeuble is wrong and even contradicting his own deep European commitment," the French minister said in the interview to be published Monday in the German business daily Handelsblatt, excerpts of which were broadcast Sunday.

"This wish, which I share, consists of reinforcing the eurozone," a goal which would preclude any such temporary exit, Sapin said, To talk now of a 'Grexit,' a Greek withdrawal from the common European currency, as Schaeuble did during talks in Brussels in mid-July, is "not realistic," he insisted, while recognising that his German counterpart was not speaking tactically but "with conviction".

Last month, eurozone finance ministers included an option for a temporary Greek exit from the euro if Athens failed to agree a bailout deal, according to a document obtained by AFP.

The potential "time-out" mentioned in the eurozone draft did not refer to a specific time period.

The Greek government later said it wants to see a final deal on its international bailout hammered out by August 20, On the possibility of a Greek exit "there is disagreement, a clear disagreement," said Mr Sapin in his Handelsblatt comments.

"If you allow (a country) to leave temporarily that signifies that all the other countries in difficulty are going to want to get out of trouble by a readjustment of the currency," Mr Sapin said.

"You don't overcome difficulties by manipulating the exchange rate but by structural reforms which reinforce competitiveness and lead to efforts at budget balancing," he added.

After lengthy negotiations, Greece and its creditors signed a general agreement on July 13 on a third bailout plan but tough talks remain on how to reduce Greece's debt burden.

AFP

Eyes on banks as Greek stock exchange to reopen

A file photograph dated February 3, 2015 of an electronic board showing share prices at the Stock Exchange in Athens, Greece. The Greek stock market is set to reopen on August 3, 2015. 

PHOTO: EPA

AUG 3, 20156:59 AM

[ATHENS] Attention will be focused on Greece's embattled banks on Monday when the Athens stock exchange reopens after a five-week shutdown over the country's debt crisis.

The banks are in a vulnerable position because of outflows of billions of euros from deposits over the past six months.

Some 40 billion euros (S$60.22 billion) has been withdrawn from Greek banks since December, according to the country's banks association.

And according to news reports on Sunday, the top four lenders - National Bank, Piraeus Bank, Alpha Bank and Eurobank - will undergo an asset quality review later this month.

Stress tests will follow in the autumn to determine the recapitalisation requirements of each bank with European rescue funds.

Greek officials want to complete the operation before new European regulations come into effect from January 1.

As of 2016, bank shareholders and depositors will foot the lion's share of recapitalisation costs - a process known as "bail-in" - instead of European taxpayers.

Greek banks were also recapitalised in 2013 with funds from the country's last EU-IMF rescue package.

The reopening of the market comes after senior EU and IMF auditors held their first meetings with Greek ministers to finalise the new three-year bailout which could be worth up to 86 billion euros.

The last session was on June 26, a few hours before Prime Minister Alexis Tsipras announced a referendum on the bailout conditions demanded by Greece's international creditors.

The main index had closed at 797.52 points, up 2.03 per cent jump.

PROTECT THE BANKING SECTOR

Over that weekend, Greeks rushed to bank cash machines, prompting the government to impose capital controls from June 29, followed by the closure of the banks and the stock exchange.

The aim was to protect the banking sector following the huge withdrawals by people nervous about Greece's economic and financial future.

For the duration of the crisis, Greece's banks have been relying on one lifeline: an ECB credit facility called an Emergency Liquidity Assistance (ELA).

The Frankfurt-based lender last week left the ELA unchanged at 90.4 billion euros The banks reopened after three weeks on July 20, but withdrawals and money transfers abroad remain under tight controls. Greeks can withdraw only up to 420 euros a week.

The capital controls were slightly eased for businesses last week but economic activity, especially imports, continues to encounter numerous obstacles.

Founded in 1876, the Athens stock exchange has closed down more than a dozen times in its history, the weekly To Vima reported Sunday, most recently in 2008 owing to a strike by Bank of Greece staff.

Other instances include the Balkan Wars of the 1990s, the World Wars I and II, the Turkish invasion of Cyprus in 1974, 1987's Black Monday in the United States and the outbreak of a stocks manipulation scandal in 1996.

The Greek economy is already forecast to contract by 3 percent this year by the Standard and Poor's rating agency, but extended capital controls and a big bail-in could constrict activity even further.

AFP