Hellenic Fiscal Council: Delay in completing 2nd review a risk to Greece’s economic recovery

Delays in completing the second review, the refugee crisis and managing non-performing loans were identified as three major risks jeopardising Greece’s return to economic growth in 2017, in a Hellenic Fiscal Council report on macroeconomic projections and budget execution issued on Friday.

According to the report, completing the second review was an essential but not sufficient condition for achieving economic growth in 2017. In addition to a delay in completing the programme, other dangers included the possible repercussions of the refugee crisis on tourism, the management of NPLs, a slow pace in privatisations and global uncertainty.

On the other hand, positive prospects were generated by a faster than predicted recovery in investor and consumer confidence, the report said.

The HFC forecast that the targets for 2016 will be met, with a 0.2 pct rise in GDP, but warned that a delay in completing the second review would increase uncertainty and volatility and put Greece’s participation in the European Central Bank’s quantitative easing programme in doubt. Low levels of uncertainty and participation in QE were fundamental for an expected increase in investments in 2017, 2018 and 2019, it added.

The report noted that a better-than-expected performance in 2016 would have a carry over effect in 2017 but also warned that the 2.5 pct of GDP target was “optimistic”.

In its analysis, the HFC report noted the following:

The relatively small reduction in the rate of change of private consumption (from 1.8 pct to 1.5 pct), in spite of pressures on income from additional taxes in 2017, is a positive sign. The report noted that private consumption could increase if uncertainty is lifted and savings directed toward the economy.

The HFC forecast for a 0.4 pct change in the public consumption rate (from -0.3 pct to -0.7 pct) compared to 2016 forecasts was realistic as part of the adjustment programme.

Reversing the economic climate was essential for an increase in investments and this could be jeopardised by delays in completing the second review.

An upward revision of import-export forecasts is justified given the expected rise in tourism, where Greece is considered a safe destination compared with neighbouring countries, while a reversal of the economic climate will boost imports.

The harmonised Consumer Prices Index (CPI) is forecast to be 0.7 pct higher than October 2016 forecasts due to the additional taxation, while unemployment will remain high until 2019.