Recovery is expected in the course of 2016 for the Greek economy, the European Commission said its autumn report on the country.
In the report titled “Uncertainty reverses economic recovery”, the Commission expects that Greece will return to recession in 2015 (-1.4 pct), after a period of high uncertainty which climaxed with the closing of banks and the introduction of capital controls.
The main remarks and forecasts of the EC report on the Greek economy are the following:
- The Greek economy built up positive momentum in 2014. However, the unsuccessful conclusion of the 2nd Adjustment Programme, the referendum called in June 2015, the ensuing bank holiday and the introduction of capital controls raised uncertainty and deteriorated the growth outlook.
- Confidence suffered, reflected in the Economic Sentiment Indicator (ESI) and the Purchasing Managers Index (PMI), the latter plummeting to historically low levels in July and August 2015. Despite the uncertainty, real GDP grew by 1.0% in the first half of 2015. This unexpected outcome most likely reflects consumers advancing spending amid fears of depositors suffering losses. It also reflects a fall in imports, as trade credit tightened significantly, and is set to impact on production with a lag.
Τourism sector performed exceptionally
- Available hard data seem not to fully reflect the turmoil at the beginning of the summer and the impact of capital controls. The fiscal drag, expected to weigh negatively on disposable income in the second half of the year as the deadline for tax payment was back-loaded, the standstill of investment and the poor availability of credit are set to take a heavy toll on economic activity.
- On the positive side, the tourism sector performed exceptionally well for the second year in a row. Despite a drop in goods exports, net trade is projected to contribute positively to growth, due to the larger drop in imports.
- Overall, the Greek economy is forecast to contract by 1.4% in 2015.
Recovery expected in the course of 2016
- Recovery is expected in the course of 2016, supported by a rebound in confidence, the stabilisation of the financial sector following the banks’ recapitalisation expected at the end of 2015, and the consequent re-launching of investment and privatisation projects. Nevertheless, the economy is projected to contract by 1.3% in 2016 amid negative carryover effects from 2015.
- In 2017, GDP growth is set to gather speed and is projected at 2.7% as implemented structural reforms strengthen aggregate demand.
