Greece will not avoid a seventh year of recession in 2014, according to a report issued on Tuesday by the Organization for Economic Cooperation and Development (OECD), but will have to wait until 2015 for its economy to begin its rebound. The organization does not rule out the possibility of a new debt writedown.
In its global economy report, the OECD forecasts Greece’s gross domestic product will contract by 0.4 percent next year (down from a previous estimate for a 1.2 percent contraction), after a 3.5 percent GDP decline this year – the government and its creditors forecast a 4 percent 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 bank’s 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 organization’s economists believe that “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 percent this year to 27.1 in 2014 and to 26.6 percent 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 percent of GDP this year to 181.3 percent next year and to 183 percent in 2015. The budget deficit is seen dropping from 4.1 percent this year to 3.6 percent in 2014 and to 2.8 percent in 2015.
The organization 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.