OECD: Greek economy rebounded in the second half of 2016, it is projected to gain strength in 2017

Economic growth has rebounded in the second half of 2016 and it is projected to gain strength in 2017 and 2018 as structural reforms start to bear fruit, the conclusion of a policy review with creditors raises business and consumer confidence and the economic and political environment stabilises, the Organization for Economic Cooperation and Development (OECD) said on Monday.

The Paris-based organization, in its Economic Outlook report, said that exports of services are underperforming because of structural rigidities and capital controls (which particularly affect the export revenue from the shipping industry). Employment is projected to increase but unemployment remains far too high.

OECD said that a Guaranteed Minimum Income program should help address rising poverty and make growth more inclusive. The implementation of key structural reforms to reduce the regulatory burden and ease regulation in the energy and transport sectors will boost productivity and growth. The high level of non-performing loans undermines credit growth, holding back investment. To deal with this, the authorities should implement already legislated incentives and performance targets for banks to monitor their progress in reducing bad debt.

The huge public debt undercuts confidence in the Greek economy, a situation that calls for additional debt relief. Even if the ambitious medium-term fiscal targets established in the 2015 agreement with creditors were met, more should be done to make public debt clearly sustainable. The implementation of structural reforms would boost growth and thereby improve debt dynamics. Broadening further the tax base and ensuring that the new independent public revenue agency improves tax compliance and collection would increase revenues.

Employment is expected to rise, but the unemployment rate will remain at very high levels, particularly among young people. The unemployment rate is projected to fall to 23.5 pct this year from 24.9 pct in 2015 and to fall to 23.1 pct in 2017 and 22.7 pct of the workforce in 2018. The inflation rate (harmonised consumer price index) is projected to rise to 0.1 pct this year from -1.1 pct in 2015 and to rise further to 1.1 pct in 2017 and 1.4 pct in 2018, due to “a higher increase in wages”. The country’s current account balance will show a deficit of 1.0 pct of GDP this year, falling to 0.6 pct in 2017 and 0.1 pct in 2018, the OECD said. The general government’s deficit (including interest) is projected to fall to 2.0 pct of GDP this year, from 7.5 pct in 2015 and to fall to 0.2 pct of GDP in 2017, while in 2018 a surplus of 0.5 pct of GDP is projected. The country’s public debt is expected to reach 185.7 pct of GDP this year, falling to 182.7 pct in 2017 and 177.6 pct in 2018.