Greek economy: positive developments reaffirmed

The good performance of the Greek economy is being reaffirmed according to many economic reports and analyses. Positive statements from European and US officials concerning the perspectives of the Greek economy are also arising, along with an important number of positive news articles and analyses in the international press. Macroeconomic indicators have lately been quite encouraging about the country’s economic perspectives, while the yield on 10-year Greek government bonds closed last Friday on 3,67% for the first time since 2006. The next issue of Greek state bonds is expected to follow immediately the conclusion of the third program review, most probably in late January. More bonds are expected to be issued by the end of the program in August 2018.

During the parliamentary debate on the 2018 state budget, Prime minister Alexis Tsipras emphasized on the importance of acceptable levels of borrowing costs so that the country can exit bailout programs and refinance its needs without the restrictive framework of external support. “The country will honor the commitments it has made towards the institutions and achieve a stable and lasting access to the markets at favorable rates, based on the directives outlined at the Eurogroup meeting last June” Alexis Tsipras said. Referring to the need for a sustainable growth, the Prime minister, in an event organized by the European Business Review, indicated that the government main’s goal is to pass the positive effects of growth within society itself, in the form of well-paid jobs and strong social protection structures adding that this can only be achieved, based on a new and fair production model, while deepening progressive reforms.

State Budget 2018 basic estimates

Budget estimates for the primary surplus of 2018 is estimated to reach 3.82% of GDP against a 3.5% of GDP target in the medium-term fiscal strategy program.

The Greek economy is projected to grow by 2.5% in 2018 compared to 1.6%, which is projected to be 2017’s growth rate. In particular, GDP is projected to reach 184.691 billion euros in 2018 compared to 178.579 billion in 2017.

Employment is expected to reach 18.4 pct in 2018 compared to 19.9 pct this year.

Recent Economic Reports on Greece

According to the Bank of Greece Interim Report on Monetary Policy (December 2017), GDP growth is seen up by 2.4% in 2018 and 2.5% in 2019, against a growth rate of 3% foreseen last year.

The positive course of the economy is reflected not only in GDP figures, but also in several key indicators of economic activity, such as industrial production, retail sales, private sector employment flows, exports of goods and services, and foreign direct investment, as well as soft data such as the manufacturing PMI and the economic sentiment indicator, the Bank of Greece notes. Improvements are also visible in the financial sector: bank deposits of the non-financial private sector have increased, the decline in bank credit to non-financial corporations has slowed, and banks’ dependence on central bank financing has gradually decreased.

Latest encouraging developments in the Greek economy made strategists at Deutsche Bank noting in their special report on Greece that “there is finally light at the end of the tunnel”adding that, although the road to normalization is long and difficult, the outlook for 2018 remains positive. Besides, Deutsche Bank CEO John Cryan speaking in an event organized by the Hellenic Bank Association in Athens underlined the opportunities that are now present in Greece after many years of recession and structural reforms.

According to OECD’s economic forecast (November 2017), GDP growth is projected to rise to 2.3% in 2018, and then moderate to 2% in 2019. Private consumption and investment will lead the recovery, responding to reduced policy uncertainty and gradually improving financial conditions. OECD mentions that exports should continue to increase, supported by rising external demand, whereas accelerating imports will subtract from growth in 2019. Excess capacity is diminishing but remains exceptionally large, limiting price and wage pressures.

According to OECD’s note, the budget surplus is on track to exceed the 2017 target, through improved tax compliance and restrained expenditure. Further progress is needed in addressing tax arrears. Reducing high levels of poverty, especially among young people, remains urgent. The guaranteed minimum income program 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 programs. Continued product market reforms would further improve competitiveness.

According to an analysis of the National Bank of Greece based on data up to December 11, 2017, the country’s recovery continues with GDP increasing by 1.3% in the third quarter of 2017 for a third consecutive quarter of positive growth. It is the first time in 11 years that economic activity has increased three quarters in a row. Supporting the sustainability of business activity, corporate profitability – approximately by the gross operating surplus and mixed income – appears, according to the same analysis, to be recovering strongly, as it posted its first 9-month period of positive growth since 2008. Exports of goods and services recorded a healthy expansion of 7.8% in the third quarter of 2017 receiving considerable support from strong tourism activity and accelerating GDP growth in the euro area.

The Hellenic Federation of Enterprises (SEV) in its monthly bulletin for December is noting that the Greek economy has entered a recovery path, supported as well by the favorable external environment. 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. Analyzing the latest figures on growth and other economic indicators, SEV singled out a number of encouraging signs of recovery, portraying 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 adjustment program in August 2018, all remaining program prerequisites would be fulfilled and Greece will enter into a phase of normality, SEV continues.

A sustainable economic recovery in the medium term requires that the exit from the economic program in August 2018 is smooth without discontinuities in the economic policy. 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.

Concerning the level of fiscal supervision for Greece after the adjustment program, the government spokesperson Dimitris Tzanakopoulos said that exiting these programs does not mean there will be no supervision or monitoring adding that “on no account, however, are we talking about the same regime of supervision or the same regime of control”

Indicators are also positive concerning job creation as, according to data collected by ERGANI Information System, in the period 2014 – 2017, employment rose by 293,258 jobs or 19.15%. In the year 2017 121,913 new jobs were created in the public sector while 14,085 new businesses were registered in relation to the year 2016.

See also via Greek News Agenda: Greece’s economic outlook: Facts and prospects