Greece will not avoid a seventh year of recession in 2014, according to a report issued this week by the Organisation for Economic Cooperation and Development (OECD), but will have to wait until 2015 for its economy to begin its rebound. The organisation does not rule out the possibility of a new debt write-down.
In its global economy report, the OECD forecasts Greece’s gross domestic product will contract by 0.4 per cent next year (down from a previous estimate for a 1.2 per cent contraction), after a 3.5 per cent GDP decline this year – the government and its creditors forecast a 4 per cent contraction for 2013.
The OECD has based its estimate for a GDP contraction in 2014 on the assumption that fiscal adjustment will continue with new austerity measures, while banks’ financial reports will not allow them to inject sufficient liquidity into the economy. The report states that Greece will return to growth during the course of next year as it forecasts that the competitiveness of the economy and external trade will improve, opening new prospects for the country.
However, the organisation’s economists believe “the necessary fiscal adjustment and the weak bank financial reports will contain domestic demand”, adding that the high unemployment and deflation will persist: The jobless rate is seen dropping from 27.2 per cent this year to 27.1 in 2014 and to 26.6 per cent in 2015.
The report stresses that fiscal adjustment must continue as planned due to the high debt, which could be trimmed further. “The need for a further lightening of the debt in order to achieve fiscal stability should not be ruled out”, the report states. It expects the debt to rise from 176.6 per cent of GDP this year to 181.3 per cent next year and to 183 per cent in 2015. The budget deficit is seen dropping from 4.1 per cent this year to 3.6 per cent in 2014 and to 2.8 per cent in 2015.
The organisation also notes that the financial reports of Greek banks will have to be restructured so as to allow for the development of credit lines. At the same time a more just and efficient tax system will be necessary for the fair spreading of the load across Greek society, the OECD concludes.
Source: ekathimerini