By Sotiris Nikas
Greece’s debt needs to be lightened further if the country is to return to fiscal stability, according to a report by the Organization for Economic Cooperation and Development (OECD), which forecasts a 0.3 percent economic contraction for this year against the 0.6 percent increase in gross domestic product that Greek and European authorities are expecting.
The international economic organization does expect the economy to revert to growth at some time over the course of 2014, but it believes that will not be enough to put it on positive ground for the whole of the year. Next year should see a healthy 1.9 percent expansion of the economy, the OECD says, while Athens and its creditors expect 2.9 percent growth.
In its six-month report on the global economy the OECD notes that a further lightening of the debt with the extension of maturity dates or the reduction of interest rates could be the solution. The report links Greece’s economic recovery with easier access to borrowing.
Tourism growth and improved confidence in Greece have helped the country’s economy put the worst behind it. The labor market has started to stabilize, it finds, although the jobless rate remains at a particularly high level: It should end 2014 at 27.1 percent against 27.3 percent at end-2013, the OECD forecasts. In 2015 it should drop to 26.7 percent. Salaries and prices will continue to decline albeit at a slower rate than previously.
The OECD says that significant economic growth rates and an additional fiscal adjustment are required for the public debt to become sustainable. Structural reforms are needed to strengthen the Greek economy’s competitiveness, along with improved liquidity. It adds that cash flow may improve more than expected thanks to the outcome of the recapitalization of the systemic banks and the return of investor confidence following the country’s return to the markets.
The report identifies two main risks for the economy: The first concerns delays in the implementation of the streamlining program that may undermine investor confidence, while the second involves the banking sector, which continues to be dogged by nonperforming loans.