Bank of Greece Interim Report lowers growth forecast for 2017

The Bank of Greece has lowered its growth forecasts for the Greek economy in its Interim Report on Monetary Policy 2017 published on Thursday.

The report that Bank of Greece governor Yannis Stournaras submitted to Parliament President Nikos Voutsis is clearly less optimistic about the recovery prospects of the Greek economy compared to last year’s report.

In particular, it has lowered its forecasts for GDP growth in 2017 to 1.6 pct, down from last year’s forecast for 2.6 pct GDP growth in 2017. Similarly, GDP is seen up by 2.4 pct in 2018 and 2.5 pct in 2019, against a growth rate of 3 pct foreseen last year.

Stournaras recommended Greece’s participation in a “precautionary support programme” considering that such a precautionary framework can support the Greek economy by reducing borrowing costs, as it will provide security regarding the Greek government’s access to finance after the end of the programme in August 2018. This will stimulate the confidence of international investors in the medium- and long-term prospects of the Greek economy, because they will know that economic policy is and will remain prudent, precluding the re-emergence of imbalances.

Clarifying the form of support that will be given to the Greek economy after the end of the programme – if the country’s credit rating had not improved by that time – was also important for two additional reasons, the report noted: so that Greek bonds might be used as collateral in the Eurosystem’s monetary policy operations and so that Greece can participate in the ECB’s bond markets as part of the QE programme.

On the issue of bad loans, Stournaras urged banks to step up their efforts to meet their business goals for non-performing loans and “ideally outperform them”, especially now that the economy has returned to positive growth rates. In these circumstances, it is imperative to extend the solutions proposed to borrowers as quickly as possible and to take more drastic decisions, in particular as regards the restructuring of viable businesses, identifying strategic defaulters and implementing a definitive solution for non-viable enterprises.

Finally, the governor of the Bank of Greece stressed that the developments in the coming months will be particularly critical because they will have a decisive impact on the course of the economy for many years.