OECD on the Greek economy

OECD, in its latest Economy Outlook released yesterday, referred to Greek economy as follows:

“The economy slipped back into recession in the latter part of 2015 after growing in late 2014 and the first half of 2015. Growth is projected to gain some momentum in the second half of 2016 as confidence strengthens and as structural reforms finally take hold and boost exports and investment. Inflation remains low due to the very depressed state of the economy. Unemployment will decline, but only gradually, which emphasises the importance of poverty reduction efforts.

While growth is fundamental to reducing the huge public debt burden in the medium term, meeting the fiscal targets is critical to contain debt and to ensure smooth financing for bank recapitalisation and further debt relief. Strengthening tax administration, including combating tax evasion, is a necessary component of this effort. Recapitalising the banking system, reducing non-performing loans and lifting capital controls would ease financial constraints and so open a path for growth. Product market reforms would improve competitiveness and create jobs. Public administration reforms would reduce the regulatory burden and enhance the capacity of social programmes to protect the most vulnerable.

Subsidies for renewable energy need to be reviewed. These subsidies are very generous, particularly for photovoltaic installations, and contribute to the renewable energy scheme’s deficit. Higher prices for non-renewable energy are needed to encourage CO2 emission reduction over the medium term. However, increases should be gradual to moderate short-term effects on households, who will face higher energy bills.”

OECD forecasts that the country’s GDP will contract by 1.4 pct in 2015 and 1.2 pct in 2016, returning to positive growth rates in 2017 (2.1 pct). “Recovery will strengthen in 2017, as structural reforms and a strong external demand will boost investments and job creation,” the report said.

It expects the unemployment rate in Greece to ease to 25.2 pct of the workforce this year, down from 26.5 pct in 2014, falling to 24.8 pct in 2016 and 23.4 pct in 2017, while the inflation rate (harmonized consumer price index) to remain in negative territory this year (-0.9 pct), returning to positive ground in 2016 (0.7 pct) and 2017 (0.5 pct).” Full Economic Outlook here.

Photo: OECD