The financial fallout from the risk of Greece exiting the eurozone has been somewhat "muted" compared with the country's previous crises, says NAB.
NAB's global and Australian economic forecasts, released yesterday, said concerns about Greece exiting the eurozone have raised both financial market volatility and downside risks to global growth.
However, the problems in Greece have had "much less impact than earlier episodes" – mainly due to the improved support systems for sovereign debt that are now in place, said NAB.
"[European Central Bank] bond buying and [European Financial Stability Facility] lending ... have resulted in much lower upward pressure on eurozone periphery bond yields.
"The pattern of exposure to Greek debt has also changed with eurozone agencies now holding most of Greece’s government debt and banks winding back their once sizeable exposure to the country," said the report.
Furthermore, it is the "apparent bursting of the Chinese equity market" that should be causing global investors the most concern, said NAB.
The equivalent of US$3.5 trillion has been wiped off the Shanghai and Shenzhen stock markets since their peak in mid-June 2015, said the paper.
"Such a loss of wealth, even with short-lived paper gains, should have an impact on the economy, partly through margin-lending deals going sour as the sharemarket fell," said NAB.
When it comes to the impact of Chinese and Greek problems on Australia, NAB has not changed its forecasts for Australian growth – with GDP set to grow 2.4 per cent in 2014-15, 2.6 per cent in 2015-16 and three per cent in 2016-17.
"It is difficult to access the impact of recent international events such as Greece and more importantly China – on confidence and further falls in commodity price," said NAB.
Economists agree that the Reserve Bank is likely to remain in inflation fighting mode until December. ...