Greek Tragedy Far From Over, Surging Oil Price Another Risk To Worry, Says Economist

By Tengku Noor Shamsiah Tengku Abdullah SINGAPORE, Feb 27 (Bernama) -- The Euro-zone finance ministers may have agreed to Greece receiving a second bailout, but the Greek tragedy is far from over, says an economist. Now, the surging oil prices pose another risk for investors to worry, says AMP Capital Investors Ltd's head of investment strategy and chief economist, Dr Shane Oliver. He said Greece would have to implement the agreed policy actions, and even if did implement everything it has committed to, it will probably still struggle to meet its deficit reduction commitments with the economy continuing to implode in the face of fiscal austerity. "So we could be back to square one in four or five months time. Hopefully by then though, the firewall around Greece would have been strengthened by the start up of Europe’s new bailout fund, extra International Monetary Fund (IMF) funding, solid support for Portugal and ongoing support from the ECB," he told Bernama. Oliver said the price of oil has continued to track higher, largely on the back of increasing tensions regarding Iran’s alleged programme to build nuclear weapons. This has seen the US West Texas Intermediate oil rising to nearly US$110 a barrel (up from a low of US$76 last October) and the Asian Tapis oil price rising to above $US133 a barrel, its highest since mid 2008. At current levels it implies a rise in average petrol prices in Australia to around $1.53 a litre. Oliver said that while this was still below the all time high of $1.65 a litre reached in mid 2008, the problem was that the latest rise will start to act as another drag on consumer spending and economic growth. "The same applies globally. As we saw last year the rise in the oil price associated with various civil wars in the Middle East played a significant role in the global growth slowdown seen from mid year. "So the surging oil price is a real risk worth keeping an eye on," he warned. Oliver also pointed that political uncertainty had taken a turn for the worse in Australia with tensions in the Federal Labor Party spilling over to a leadership ballot in the week ahead. While the leadership soap opera may be entertaining it is likely to take a toll on business and consumer spending decisions. So the sooner the whole issue is settled, the better, he said. Oliver said global data releases over the last week were generally favourable with indications of continuing strength in the US, ongoing evidence that Europe's recession will be mild not deep and increasing confidence China will avoid a hard landing. In Australia, testimony before the Parliamentary economics committee by Reserve Bank of Australia (RBA) Governor Glenn Stevens indicated that the RBA is quite happy with current interest rate settings. "Our view remains that the softness in retailing, housing, manufacturing, tourism and the jobs market along with the rise in bank mortgage rates and the strong Australian dollar justify a further easing but its clear that the RBA doesn’t agree," Oliver said. "So the next rate cut could be several months away, if it still occurs." In the week ahead, Oliver said the focus will be on the European Central Bank (ECB)'s second tranche of cheap three-year funding for banks, the US ISM index, Chinese PMI (purchasing managers index) indicators and data for retail sales, house prices, private credit, building approvals and investment in Australia. European shares had solid gains on Friday (+0.6 per cent), US shares were pretty flat (Dow -0.01 per cent, S&P500 +0.2 per cent) with solid data for new home sales and consumer sentiment being offset by a further surge in the oil price. --BERNAMA