The delay in the completion of Greece’s second bailout review will inflict a blow on economic growth this year, which will underperform the government’s expectations, the Foundation for Economic and Industrial Research (IOBE) argues in its quarterly report released on Thursday.
IOBE analysts note that the economic rebound in 2017 will range between 1.5 and 1.8 percent, which is smaller than the target set in the budget. They also estimate that unless the review is completed by spring, that possible growth rate of 1.8 percent will no longer be attainable.
The foundation believes that the budget target of 2.7 percent expansion will not be achieved due to the delay in entering the European Central Bank’s quantitative easing (QE) program, increased imports and the delay in the review’s completion.
For 2017, IOBE says the main factor affecting the Greek economy – quite possible to a greater extent than in 2016 – is the new fiscal measures. The increase in existing taxes, such as the special consumption tax on oil, autogas and tobacco, and the imposition of new ones (on landline telephone services, coffee imports etc) since the start of the year will further reduced households’ disposable incomes.
The strongest pressure from the fiscal measures will fall on the income of freelance workers and farmers, due to changes in the calculation of social security contributions. The months of uncertainty over its application has resulted in increasing unrest among freelance workers since the last quarter of 2016, leading to many of them closing their books.
IOBE further expects the new measures to affect the investment climate as “investors are interested in business conditions. Constant changes in corporate taxation in the last couple of years, changes to social security contributions and the sense of regulatory instability in Greece are factors that dissuade investors from taking risks.”
The report also warns that the budget target for additional revenues from the new hikes in fuel and tobacco taxation are particularly optimistic.