OECD report: Greek economy to grow by 2.3 pct in 2018

The Greek economy is projected to grow by 2.3 pct in 2018, and then moderate to 2 pct in 2019, from 1.4 pct this year, the Organisation for Economic and Cooperation and Development (OECD) said on Monday.

OECD in its Economic Outlook report, said that private consumption and investment will lead the recovery, responding to reduced policy uncertainty and gradually improving financial conditions. Exports should continue to increase, supported by rising external demand. Accelerating imports will subtract from growth in 2019. Excess capacity is diminishing but remains exceptionally large, limiting price and wage pressures.

The budget surplus is on track to exceed the 2017 target, through improved tax compliance and restrained expenditure, the Paris-based organisation said, adding that further progress is needed in addressing tax arrears. Reducing high levels of poverty, especially among young people, remains urgent. The guaranteed minimum income programme is a welcome first step but social protection overall needs to be refocused. The recent spending review has identified fiscal space for a moderate expansion of targeted social programmes. Continued product market reforms would further improve competitiveness.

Greece’s high public debt and banks’ large stock of non-performing loans (NPLs) are sources of financial vulnerabilities, the OECD said. It noted that putting public debt on a stable downward path will require sustained reforms to boost potential output and additional debt restructuring. Banks’ large stock of NPLs adds to risks and limits banks’ lending. Gradually curing and disposing of NPLs while ensuring banks retain sufficient capital buffers is a priority.

Greek unemployment rate is projected to fall to 20.5 pct in 2018 and to 19.5 pct of the workforce in 2019, from 21.7 pct this year and 23.5 pct in 2016. “Surplus productive capacity is falling but remains extremely high, limiting pressures on prices and wages,” the organisation said. The OECD said it expected the Greek inflation rate (harmonised consumer price index) to rise to 1.2 pct this year, slowing to 1.0 pct in 2018 and rising again to 1.2 pct in 2019, while the country’s current account balance is expected to show a surplus of 0.4 pct of GDP this year and in 2018 and a surplus of 0.1 pct of GDP in 2019.

The Greek government is on track to achieve a primary surplus of 2.2 pct of GDP this year, the OECD said, adding that: “reduced uncertainty over public finances led to an increase in the country’s credit rating and lower spreads on state debt, allowing the government to issue its first bond after three years”. The organisation estimates that public debt (based on the Maastricht definition) will fall to 177.9 pct of GDP this year from 180.8 pct in 2016, falling further to 172.8 pct in 2018 and 169.3 pct in 2019.