Commission: Greek economy to grow by 1.9 pct in 2018 and by 2.3 pct in 2019

The Greek economy is expected to grow by 1.9 pct this year, after growing by 1.4 pct in 2017, exceeding the 1.0 pct level for the first time since 2007, while it is projected to grow by 2.3 pct in 2019, the European Commission said on Thursday.

In its Spring Economic Forecast, the EU’s executive body said, however, that its forecasts for Greece were revised slightly downwards compared with its previous forecast of a 2.5 pct growth rate in 2018 and 2019.

The Commission said that forecasts over unemployment were better than expected, as the unemployment rate is projected to fall below 20 pct of the workforce in 2019 (from 20.1 pct this year to 18.4 pct in 2019). The unemployment rate was 21.5 pct in 2017. Employment is expected to grow by 1.7 pct this year and by 1.8 pct in 2019.

The country’s fiscal surplus will reach 0.4 pct of GDP this year and 0.2 pct in 2019, down from its previous forecast of 0.9 pct and 0.8 pct, respectively. However, the Commission noted that Greece managed to present a fiscal surplus of 0.8 pct in 2017 from a forecast for a 1.2 pct deficit. The Greek public debt is expected to fall to 177.8 pct of GDP in 2018 (178.6 pct in 2017) and to 170.3 pct in 2019. The inflation rate is projected to ease to 0.5 pct in 2018 rising to 1.2 pct in 2019 from 1.1 pct in 2017. Investments are expected to grow by 10.3 pct this year (down from a previous forecast of an 11.5 pct rise) and to grow by 12.1 pct in 2019.

The Commission, in its Spring Forecast titled “A new chapter of growth lies ahead”, stressed it was the first time that the Greek economy grew by more than 1.0 pct since 2007 and noted that although its latest forecasts were lower compared with its previous forecasts, it is also the first time since 2006 that the Greek economy recorded growth rates in all four quarters of 2017.

Investments grew by 9.6 pct while private consumption contributed 0.1 percentage points to economic growth and public consumption fell by 0.2 percentage points.

The Commission said it expected investments to continue growing dynamically in 2018 and in 2019, supported by further improvements in the economic climate and an ongoing privatisation programme. Additional liquidity in the economy, as the government sought to repay arrears to the private sector, foreign direct investments and support by international financial organisations are also expected to contribute in a more dynamic economic growth. Exports are projected to remain at a good level while tourism is expected to record another very positive performance this year. Import demand is also expected to be strong as a result of higher investments.

The Commission said that all these forecasts are based on the assumption of a timely completion of a fourth and final review of the Greek programme and the successful completion of its stabilisation programme. It noted, however, that “downward risks” were more intense and related with the funding of investments and geopolitical tensions in the region.

The European Commission stressed that Greece achieved a fiscal surplus of 0.8 pct of GDP in 2017 and surpassed a goal for a 1.75 pct primary surplus. These reflected a reform of the pension system in 2016 and a reform of direct taxation. The Commission, however, expects that over-performance will be rather limited next year. The Commission expects Greece to achieve a goal for a primary surplus of 3.5 pct of GDP in 2018 and 2019 supported by the implementation of a package of measures agreed with the country’s creditors and passed by the Greek Parliament in May 2017, such as an alignment of pensions with a new pension formula, saving 1.0 pct of GDP in 2019. The fiscal impact of this measure is expected to be counterbalanced with an increase in social spending and investments.