Hellenic Federation of Enterprises report: Recovery at last! Now comes the difficult part…

The Greek economy has entered a recovery path, supported as well by the favorable external environment, the Hellenic Federation of Enterprises (SEV) said in its monthly bulletin for December under the headline “Recovery at last! Now comes the difficult part…”

The agreement for the 3rd review of the adjustment programme was expected to further improve the economic climate, accelerating growth in last quarter of 2017, and in 2018 as a whole. Nevertheless, the trend in investment is still problematic and private consumption was recovering relatively slowly, as over-taxation continued to compress household disposable income, the report said.

The significant increase in imports also reflected the country’s still weak transformation progress into a supply-side economy driven by manufacturing, SEV noted. On this basis, a sustainable economic recovery in the medium term requires that the exit from the 3rd Memorandum in August 2018 is smooth without discontinuities in the economic policy. Otherwise, the market reaction will be rapid and rising interest rates will quickly reverse the good climate, it warned.

The report pointed to a decline in interest rates and yield spreads on 10-year Greek bonds, saying that this improvement was expected to continue in 2018 barring any adverse developments.

Analysing the latest figures on growth and other economic indicators, meanwhile, SEV singled out a number of encouraging signs of recovery, albeit with continued problems.

“These developments portray a clear recovery trend. The Greek economy seems at long last to enjoy the fruits of the multi-year fiscal adjustment and structural reform process, as expectations are strengthened that, by the contractual end of the Memorandum in August 2018, all remaining program prerequisites would be fulfilled and Greece will enter into a phase of normality,” SEV noted.

The full restoration of Greece’s position in the Eurozone will require the strict compliance with the post-Memorandum agreements, mainly regarding the framework of the surplus fiscal management, the federation warned. Any slippage will bring forth the market’s reaction, without access to Community solidarity for financing, and with the European institutional setting fully adapted to the need to deal effectively with any inability to fulfill one’s obligations. “There will be no second chance. The time has come, therefore, to commit to a certain course of action,” the report underlined.

“The first six months of 2018 will be instrumental, as there is no longer time to defer partially to the future the implementation of agreed upon measures, as unfortunately was the case up to now, with the tolerance moreover of the Institutions. The Greek government seems to have internalized the need for in-time compliance to the program requirements, as attested by the agreement on the 3rd program review. What remains vital is for the government to persevere, so that market access is achieved seamlessly as a matter of course, with a clear-cut commitment for the implementation of an economic policy centered around stability in the post-Memorandum era,” SEV said.

“This was necessary as well for a modus vivendi to be established between Greece and Europe, as Greece looks forward to ad hoc debt relief, so that interest and amortization payments are normalized at levels which are both desirable and fair, and consistent with debt sustainability,” the report concluded.