Commission: Year 2014 will be a turning point for Greece

The year 2014 will be a turning point for Greece, the European Commission said on Tuesday. In its report on Greece, titled “The economy is recovering at last”, the EU’s executive underlined that after six years of contraction, 2014 is expected to be a turning point for Greece and noted that a long-awaited recovery will be based on private consumption and exports although it added that the size of positive results will depend on implementation of investment policies.

The Commission, in its report, said that economic growth was weak in the first quarter of 2014, but strengthened in the second quarter and was expected to grow further in the third quarter of the year. However, the Commission noted that prevailing tight conditions in new credits and a low absorption of EU funds remained hurdles in investment recovery. The EU’s executive expects the Greek economy to grow by 0.6 pct this year and by 2.9 pct in 2015, but noted that investments would continue to be affected by uncertainty over the implementation of policies in the first quarter of 2015. The report noted that private consumption was expected to grow helped by a low inflation rate, higher available income and the use of savings. Exports were expected to grow significantly in 2015, helped by a depreciation of the euro currency and a strengthening Greek economic competitiveness. The Greek economy is projected to grow by 3.7 pct in 2016 reflecting positive developments in investments and the benefits of ongoing structural reforms. The country’s current account deficit is expected to reach 2.8 pct of GDP in 2014, falling to 2.5 pct in 2015 and to 2.2 pct in 2016. The unemployment rate is projected to slow to 26.8 pct in 2014, to 25 pct in 2015 and to 22 pct in 2016.

Finally, consumer prices are expected to fall by 1.0 pct in 2014, but to rise again to 0.3 pct in 2015 and 1.1 pct in 2016.

The Commission said that economic growth in Greece could prove less dynamic if uncertainty over the implementation of policies has a larger negative impact on confidence and investments, or if geopolitical developments have a greater negative impact on the region. The Commission noted that exports could surpass expectations, along with investor confidence, if a process to resolve the issue of non-performing loans was successfully completed and the results of an Asset Quality Review on Greek banks’ capital were confirmed.

The EU’s executive noted that the country’s fiscal deficit rose to 12.2 pct of GDP in 2013 (from 8.6 pct in 2012) because of the temporary cost of bank recapitalization, but stressed that despite these developments “Greece’s fiscal condition improved significantly in 2013”.

The fiscal deficit is projected to fall to 1.6 pct of GDP in 2014 on the condition that the government continued its strict control on spending, ensuring the achievement of a primary budget surplus of 1.5 pct of GDP in 2014.

The Commission expects the primary surplus to reach 3.0 pct of GDP in 2015 and 4.5 pct of GDP in 2016, helped by fiscal and structural reforms and an improved economic environment.

Greece’s public debt will stabilize in 2014 and was expected to fall steadily from 2015 onwards as a primary surplus and an economic growth will continue improving. “Reduced bank recapitalization needs are expected to lead to lower borrowing from EFSF, resulting to a further reduction in the country’s debt,” the Commission said in its report.