Wall Street predicting Greek tragedy: CNBC Fed Survey

A woman walks past Greek flags hanging on a kiosk in central Athens on June 15, 2015.
Aris Messinis | AFP | Getty Images
A woman walks past Greek flags hanging on a kiosk in central Athens on June 15, 2015.

Amid faltering negotiations and looming default, Wall Street now predicts a Greek tragedy coming to the world stage.

Half of respondents in the latest CNBC Fed Survey said Greece will leave the euro zone in the next three years, up from 39 percent in April and the highest percentage in the survey's history.

"Geopolitics simmer," said Subodh Kumar, founder of consulting firm Subodh Kumar & Associates. "Greece trials and tribulations reflect worldwide tendencies for politicians to procrastinate and to use easily availed money not to restructure but instead to ingrain munificence."

One in 4 respondents said geopolitical risks are the biggest danger to the U.S. economy, up from 1 in 10 in the prior survey. It shows that Wall Street thinks the U.S. economy is doing OK on its own but its biggest threats come from overseas. Global economic weakness is seen as the second-biggest threat to the recovery. Foreign weakness relative to a stronger U.S. economic picture has helped bolster the dollar, viewed by some economists as a risk to U.S. growth.

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"One need look no further than 1Q 2015 to get an idea of how the dollar can impact economic output," said Guy LeBas, fixed income strategist at Janney Montgomery Scott.

Dean Baker, co-director of the Center for Economic and Policy Research, said the trade deficit is the major drag on growth right now. "It is remarkable more people are not talking about the need for a lower-valued dollar,'' he said.

Still, heightened fears of a Greek exit are not seen cascading through the euro zone. The likelihood of Portugal, Spain or Italy leaving the euro zone lingers around 10 percent, up just a bit from the April survey. Ireland remains low at just 5 percent, similar to Germany and France, which are both below 5 percent.

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The overall outlook for the U.S. economy remains relatively upbeat with respondents predicting only a 15 percent chance of recession in the next 12 months and growth estimated to rise to 2.8 percent in 2016.

The CNBC Fed survey was conducted June 11-13.

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