Macro Weekly – Good news all around: Greece, Walmart, Shunto and Macron

by: Han de Jong

Big Picture - 23 February 2015 - Good news all around: Greece, Walmart, Shunto and Macron.pdf ()

The week just gone by saw little in the line of spectacular economic data. Nevertheless, there was good news at various levels. Greece reached a preliminary agreement with the Eurogroup. Walmart announced a pay rise for 500,000 employees. The wage bargaining season in Japan, Shunto, is promising to provide some stronger wage gains, and the French economics minister pushed through a (modest) set of reforms.

The data

The week just gone by produced relatively little in the line of important data. Recent trends were continued. We have long argued that the eurozone economy should beat expectations this year as significant tailwinds are developing. Unfortunately, the sails of the eurozone’s ship are small, so even huge tailwinds will not lead to spectacular growth. Nonetheless, an acceleration is materialising. The most recent readings on the various ZEW indices confirmed the broad improvement in economic conditions and expectations. Eurozone car sales also strengthened in January and consumer confidence improved. Anecdotal evidence from various companies was likewise positive. Randstad, the Dutch HR service provider, for example, produced decent Q4 results and indicated that its business conditions continue to improve. That is good news as this is an early-cyclical company.

US data was less strong. Various business confidence indices disappointed in February. That may be related to the sharp drop in investment spending in the oil sector. It may also be related to adverse weather or it may be the result of the stronger dollar. Whatever the reason, if this trend continues, the odds of a June rate hike by the Fed will lengthen. This is particularly the case as inflation continues to be subdued and is set to ease further in the months ahead. The latest set of FOMC minutes did not provide direction either way. We imagine that should the Fed be planning to start its hiking process in June, it will indicate this intention at the March meeting in a few weeks’ time.


After a lot of noise, Greece and the Eurogroup reached some sort of a preliminary arrangement to extend the current programme by four months. However, this is not yet a done deal. As we speak, the Greeks are working hard at producing a document that should satisfy the Eurogroup that measures will be taken to ensure that the current programme can be successfully concluded. It seems that, so far, the new Greek government has produced documents that have not impressed the Eurogroup. Hopefully it will be different this time. Further negotiations will take place on Monday night. We are not out of the woods yet.

The stakes are high

The differences between Greece and the Eurogroup do not look overly large. However, both sides have dug themselves in and will find it hard to compromise. The new Greek government was elected on a platform of a different approach to the crisis in Greece and, obviously, cannot do a complete U-turn. They must be able to show at home that they have achieved something. The Eurogroup is careful not to give in too much to Syriza’s demands as opposition parties in other countries would benefit and it might undermine the whole approach chosen to deal with the crisis.


The world economy is suffering from weak demand. One way to deal with weak demand is to increase public spending or to lower taxes. Unfortunately, public finances in many countries allow for little room in these areas. Another way to boost demand is to increase wages. Recent signs on this front are positive. Wage increases in Germany, for example are accelerating. Walmart, the huge US retailer announced it will increase wages of some 500,000 employees. Whether a single company, even if it is Walmart, can have a big impact at a macro level remains to be seen, but I think it is good news. At the same time, the wage bargaining process in Japan, the so-called Shunto, promises to produce an acceleration of wage gains. That would also be good news as it supports hope that Abenomics will eventually work.


The French economics minister Emmanuel Macron pushed through legislation that will lead to some modest liberalisation of the French economy. Even that was not a walk in the park. Afraid that the law might not win parliamentary approval, the government decided to follow an unusual procedure and did not put the law up for a vote but implemented it without parliamentary approval. This situation then triggered a confidence vote in the French government, which prime minister Manuel Valls and his team survived. This is also good news as it shows that the French government realises what needs to be done to raise the growth potential of the French economy. And the measures themselves will, indeed, help. What is worrying is that the government had to apply unusual tactics to get the legislation through. But at least it is step in the right direction.