BoG: Salary recovery from 2015

Increase in investment and exports is required to help the economy revert to growth from this year By Evgenia Tzortzi

Salaries are expected to start edging higher as of next year, while the reduction in social security contributions from July will entail a drop in labor costs, according to the Bank of Greece.

In its final report signed by outgoing Governor Giorgos Provopoulos and submitted to Parliament on Thursday, the central bank highlights the various uncertainties and risks that could raise obstacles on the road to recovery. That road is open for now, but there is no room for complacency, it adds. The effort must continue without any distractions and must be focused on reorganizing the public sector, continuing with the fiscal adjustment and reforming the country’s production model so as to safeguard long-term, sustainable growth.

Reversing the negative course of investments and boosting exports are the two main requirements for the economy to gradually return to growth within the year, it notes.

The BoG confirmed its estimate that the recession will end and the gross domestic product will expand by 0.5 percent in 2014, while the recovery in terms of employment will be slow, starting from this year. The jobless rate remains particularly high and will only start to decline gradually, given the current level of underemployment in the work force.

Following a significant drop in average salaries that amounted to 6.5 percent in 2013, the decrease will be much smaller this year as employees’ average gross pay will fall 1.5 percent in the economy as a whole and by 2 percent in the corporate sector. Average labor costs per salary worker will decline by 3 percent due to the 2.9 percentage point reduction in employers’ social security contributions as of July 1.

At the same time the average net salary in the corporate sector will go down by 1.4 percent – less than gross salaries – as a result of the 1 percent reduction in employees’ social security contributions from next month. The central bank believes that average gross salaries will edge marginally higher (by 0.1 percent) across the economy and in the corporate sector in 2015, while average labor costs per salary worker will fall by 0.8 percent.