Agreement or not, Greece’s troubles are far from over

The latest news on the Greek economy support the IMF’s pessimistic views about the sustainability of Greek debt. But regardless of whether a deal on the third bailout is reached or not, rising euroscepticism elsewhere in the region implies that there is little prospect of EU partners ever agreeing to meaningful debt relief for Greece. Amid headlines about the ongoing talks between the EU and IMF over the Greek bailout, this week’s data have painted a poor picture of Greek economic conditions. Greek GDP contracted by 0.4% in Q4, far underperforming the consensus forecast for a 0.4% expansion.  Worse still, after weakness in Q4, the manufacturing PMI dropped further in January, suggesting that the economy made a very poor start to 2017. That contrasts with the aggregate euro-zone survey, which improved markedly. While part of January’s fall was probably due to temporary weather effects, the survey’s weakness may also be due to the latest raft of austerity measures that came into force at the start of the year, as well as the recent rise in energy price inflation.