Greece uncertainty might lead Fed to delay its hike to December – BNPP

FXStreet (Barcelona) – Although only limited contagion is expected in rest of the Eurozone in case of a Grexit, the BNP Paribas Team believes that the Greek uncertainty might result in the Fed postponing its rate normalization to December rather than September.

Key Quotes

“Although the developments of the past months and those which still are to unfold will have a significant negative impact on the Greek economy, even more so in case of a Grexit, the impact on the rest of the Eurozone should be very limited. The exposure of the private sector, in particular the banking sector, to Greece is very limited. Exports of the Eurozone to Greece only represent 0.5% of Eurozone exports. Moreover, countries like Portugal, Spain or Italy, which in 2011-2012 had suffered considerably from Greek contagion, have since seen an improvement in their economic fundamentals (public finances, current account) and this should limit the contagion effect this time around.”

“On the other hand, ongoing uncertainty about what will happen with Greece will cause uncertainty beyond Greece and this may have some short term economic impact.”

“For this reason we also believe that the US Federal Reserve may very well postpone its first rate hike in this cycle to December rather than in September as we previously thought.”

Although only limited contagion is expected in rest of the Eurozone in case of a Grexit, the BNP Paribas Team believes that the Greek uncertainty might result in the Fed postponing its rate normalization to December rather than September.

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