Greece’s economy is expected to grow by 1.9 percent this year, the country’s central bank said in its annual monetary policy report on Monday, an expansion pace below what the government is projecting.
The economy is recovering after a nine-year debt crisis that shrank it by a quarter. The country reached the end of its third international bailout program last August and is now relying on bond markets to refinance its debt.
The Bank of Greece sees economic growth picking up to 2.1 percent next year and forecast that this year’s primary budget surplus, which excludes debt servicing outlays, will reach 2.9 percent of gross domestic product, missing a 3.5 percent target agreed with the country’s official lenders.
“The economy continues to face significant challenges that were brought on by the long economic crisis,” the central bank’s report said.
The Bank of Greece said the challenges include a high load of non-performing loans weighing on the country’s banks and high public debt whose sustainability has improved after the medium-term measures approved by the Eurogroup in June last year.
It noted that the maintenance of high primary surpluses for a protracted period, particularly when coupled with very high taxation and cuts in the public investment program, is also a significant challenge, hindering recovery.
Athens has committed itself to achieving big primary budget surpluses, which exclude debt-servicing costs, of 3.5 percent of GDP until 2022, and 2.2 percent until 2060.
“In consultation and agreement with European partners, the primary surplus targets up to 2022 must be reduced and a fiscal policy mix that is more growth friendly needs to be adopted, the Bank of Greece said.
It called for a faster pace of privatization and a more aggressive policy to attract foreign direct investments. [Reuters]