The annual Bank of Greece report published on Friday stresses the immediate need for a change in the fiscal policy mix to make it more growth-friendly, while bringing down its growth expectations for 2017 from 2.5 percent to 1.6 percent. Crucially it warns that a fourth bailout might be necessary if the country’s debt is not sufficiently reduced.
The report signed by central bank chief Yannis Stournaras attributes the downward revision of economic performance to the “great delay in the completion of the second bailout review and the ensuing surge of uncertainty that has created a considerable decline in investments. This, combined with the great increase in the tax burden, has weakened the original forecast.”
Despite the deterioration in forecasts for 2017 the midterm prospects for growth remain positive, but only provided that the implementation of reforms is unhindered, the BoG report notes.
It highlights the progress that the completion of the second review constitutes, and argues that the midterm fiscal plan will contribute toward improving growth prospects, strengthening confidence and bolstering investment activity if implemented without any further delays and with strong determination.
The report further records the three major problems that the major extended recession of the last few years and the reduction of investments have led to: They are high unemployment, the great volume of nonperforming loans and the high public debt.
The debt is the most pressing issue on the fiscal side, and BoG warns that Greece will need a new funding boost unless it is dealt with. The report notes it was acknowledged in the June 15 Eurogroup that Athens has met the obligations of the agreement and a clearer direction was given for the restructuring of the debt after the program ends. However, it stresses that the medium-term measures for rendering the debt sustainable will have to be more specific, to ease Greece back into the money market up to summer 2018, while any extension of uncertainty after that date will augur a new bailout process.