Greece: Time to Invest Again?

By Marcus Bensasson

The country’s long-term local currency debt was upgraded to Caa1 from Caa3, New York-based Moody’s said in a statement yesterday. The nation’s short-term debt rating is unaffected and remains not prime, or NP.

The significant improvement in fiscal position over the past year and the view that the government remains committed to fiscal consolidation underpin a forecast of a gradual decline in public debt, Moody’s said. The credit-rating company also cited gains in Greece’s economic outlook, based on both a cyclical recovery and the progress made in implementing structural reforms and rebalancing the economy, further supporting the downward trajectory of the public debt ratio.

Greece’s economy will grow this year for the first time in seven years, the European Commission predicts. The country received two rescue packages with pledges totaling 240 billion euros ($322 billion) from the euro area and the International Monetary Fund and underwent the biggest sovereign debt restructuring in history in 2012.

Read the whole piece at Businessweek

IMF Growth Forecasts Seen Too Optimistic in Large-Loan Countries

Sandrine Rastello in Washington at

The International Monetary Fund tends to be too upbeat when projecting the economic growth of countries that receive large loans, an internal audit found.

In a report that looks at IMF loan programs between 2002 and 2011, the auditor found that “the forecast bias at program inception was optimistic and significant” for nations that could borrow more than their size at the fund would allow under the “exceptional access” rule.

Such nations include Ukraine in 2008 and 2010, Greece in 2010 and Iceland in 2008, according to the report, which found no bias in the case of smaller loans.

“This fact may explain the generalized public perception of the optimistic bias: exceptional access arrangements have, over the years, received considerable media attention,” the Independent Evaluation Office said in its report dated Feb. 12 and released today.

The fund in recent years said that it miscalculated the impact austerity policies would have in euro-area countries and has since eased its conditions, for instance, by giving Portugal more time to meet its budget-deficit targets.

The report also looks at the IMF’s global forecasts, or World Economic Outlook, which are published twice a year for all member countries.

“By and large, country officials have confidence in their integrity,” the auditor said of IMF forecasts.

GDP Forecasts

Over the 1990-2011 period, on average the IMF tended to overpredict gross domestic product expansion and undepredicted inflation because of regional or global depressions. Overall the forecasts’ accuracy were comparable to that of private-sector economists, the IEO found.

“Macroeconomic forecasts are critical inputs not only for the IMF’s bilateral and multilateral surveillance, but also for our program negotiations and the assessment of global risks, vulnerabilities, and spillovers,” IMF Managing Director Christine Lagarde said in a statement.

“I agree with the IEO that we should further strengthen the learning culture in the fund, including by enhancing our learning from past forecast errors, keeping up with advances in forecasting approaches and implementing the recommendations of external evaluations of IMF forecasts,” she said.

World Bank Sees Stronger Growth as Rich Economies Expand


The rosier outlook suggests the world economy is finally breaking free from a long and sluggish recovery after the global financial crisis.

The poverty-fighting institution predicted global gross domestic product will expand 3.2 percent this year, from 2.4 percent in 2013, according to its twice-yearly “Global Economic Prospects.” In the bank’s last forecast in June, it expected global growth to reach 3 percent in 2014.

The bank said the global economy had come to a “turning point,” as fiscal austerity and policy uncertainty no longer weighed as heavily on most richer economies. The bank expected stronger growth in the United States in particular, of 2.8 percent in 2014, from 1.8 percent last year.

“For the first time in five years, there are indications that a self-sustaining recovery has begun among high-income countries – suggesting that they may now join developing countries as a second engine of growth in the global economy,” the bank’s chief economist Kaushik Basu said in the report.

The bank again shaved its forecasts for developing countries, to 5.3 percent for 2014, from the 5.6 percent it predicted in June.

Emerging markets have grown at their slowest pace in a decade for the past two years, after chalking up growth rates of around 7.5 percent before the global financial crisis hit in 2008.

Andrew Burns, the report’s lead author, said frothy growth before the crisis reflected cyclical factors.

“We’re moving into a new phase where developing countries are growing at a rate much closer to their underlying sustainable rate of growth,” he told reporters.

The World Bank on Tuesday raised its forecast for global growth for the first time in three years as advanced economies started to pick up pace, led by the United States.


As advanced economies strengthen, countries may begin pulling back from the massive monetary stimulus launched at the height of the crisis. The U.S. Federal Reserve has started winding down its monthly asset-purchase plan this month, though it expects to keep interest rates low for at least another year.

The World Bank said it expects rates around the world to inch up gradually, causing minimal disruptions for developing countries as capital inflows slow down.

“Whatever drag this implies for developing country growth is more than offset by the additional export demand due to stronger high-income country growth,” the report said.

However, if rates jump suddenly, countries with high debt levels or large current account deficits such as Thailand and Malaysia would be most vulnerable.

The bank said that while risks to its global outlook, including a sharp rebalancing in China, a protracted recovery in the euro zone, and fiscal policy uncertainty in the United States, have not been eliminated, they have subsided.