With Greece agreeing to a bailout deal with its creditors last week, the country's woes are likely to fade into the background as far as global markets are concerned, says AMP Capital.
AMP chief economist Shane Oliver said while people will be keeping tabs on Greece’s progress towards meeting its three-year bailout, he suspects the country is on its way to becoming “background noise”.
“Greece will remain in the spotlight with progress towards a new three-year bailout likely to be watched closely, with a few fireworks along the way likely to be inevitable," he said.
“Given that the Greek economy will likely get worse before it gets better and debt relief is still a way off (after program reviews) another rebellion by Greece – reopening the prospect of a Grexit – remains a risk.
“[However], in the short-term Greece is likely to fade as an issue,” Mr Oliver continued.
He also said the key for investors to bear in mind is the risk of “contagion” flowing from Greece to other eurozone countries is now “substantially reduced” compared to several years ago.
“Other vulnerable countries [are] in much better shape and defence mechanisms [are] much stronger.
“Through the recent turmoil the highest Italian and Spanish 10-year-bond yields got to was just 2.4 per cent, a fraction of the seven per cent plus seen in [from] 2011 to 2012,” he said.
Mr Oliver added that the events with Greece and China’s share market turmoil provide a reminder that the world is still being subject to deflationary shock.
“[This is] serving to keep economic growth uneven and constrained and ensuring that monetary conditions need to remain easy.”
Economists agree that the Reserve Bank is likely to remain in inflation fighting mode until December. ...