European Commission: Greek economy shows “signs of recovery”

Greek economy is showing “signs of recovery”, the European Commission said in its winter forecasts for the period 2016-2018, released on Monday.

The Commission stressed that following completion of the first review of the EMS programe, “the Greek economy is gradually growing” and “public finances perform better than expected”.

The Commission forecasts that the country’s real GDP will reach 0.3 pct in 2016, “reflecting an improvement in business and consumer confidence,” after the repayment of state arrears to the private sector and the completion of the first review. The European Commission, forecasts that Greek economic recovery will accelerate in 2017 -on the condition of a timely completion of a second review of the programe- reaching 2.7 pct based on improving financial conditions and a gradual lifting of capital controls. It also envisages a rise in private consumption and investments to 3.1 pct in 2018.

The Commission sees an improvement in the country’s labour market in the last two years. Employment grew 2.4 pct on average in the first 10 months of 2016 and was projected to rise by an average rate of 2.2 pct by 2018.

Unemployment is projected to fall to 23.4 pct of the workforce in 2016, from 24.9 pct in 2015, “helped by reforms in the labour market setting flexible employment forms and wages”.

“Downward risks” that could affect forecasts are related, mostly, with uncertainty over completion of the second review, outside factors such as geopolitical and economic tensions on a global and regional level and a refugee crisis.

The country’s fiscal deficit is expected to fall to -1.1 pct of GDP in 2016, to remain stable in 2017 and to turn into a surplus of 0.7 pct of GDP in 2018. The Commission expects Greece to significantly overshoot its target for a primary surplus to 2.0 pct of GDP in 2016, from a target of 0.5 pct of GDP. The report said that Greece will achieve a goal for a primary surplus of 1.75 pct of GDP in 2017 and noted that a strong revenue performance in 2016 “based on an ongoing reform of revenue administration” will also help to achieve goals in 2018.

The Commission said there were some downward risks related with the possibility of a smaller performance of fiscal reforms in 2017 because of a delay in completing the second review of the programe. It noted that Greek authorities were expected to adopt a medium-term fiscal package of 2018-2021, which includes necessary adjustments in fiscal policies to safeguard achievement of a goal for a primary surplus of 3.5 pct of GDP in 2018.

The Commission envisages that the country’s public debt will rise from 177.4 pct of GDP in 2015 to 179.7 pct in 2016, but to begin falling from 2017 onwards. Introduction of short-term measures by the ESM in 2017 and 2018 was expected to raise the borrowing cost in the short-term, but to lowered it in the long-term and to reduce the debt repayment programe.