Greece’s battered economy will keep shrinking until mid-2013 as fiscal belt-tightening continues to weigh while austerity fatigue may hamper the pace of reforms, the OECD projected in its May outlook on Tuesday.
The twice bailed-out country is headed for crucial elections on June 17 that could determine if it continues to get funding from its currency partners and remain in the euro zone.
The forecasts by the Paris-based Organisation for Economic Co-operation and Development assume Athens fully implements a European Union/International Monetary Fund plan of reforms under a 130 billion euro rescue package to make its economy more competitive and repair public finances.
“The economy is set to contract until mid-2013 due mainly to needed fiscal retrenchment. Growth may turn positive in the second half of 2013,” the OECD said, expecting a deeper downturn this year than the country’s central bank and the EU Commission.
The OECD sees the Greek economy shrinking 5.3 percent this year after a 6.9 percent slump in 2011. The Bank of Greece and the EU Commission expect a contraction of 5.0 and 4.7 percent, respectively, this year.
While growth may return sometime in the second half of 2013, the OECD projected a 1.3 percent contraction for the year as a whole, extending Greece’s recession into a sixth year. The EU Commission’s full-year projection sees flat GDP growth.
Structural reforms should begin to bear fruit by the middle of next year while bigger use of EU structural funds would help jump start the economy, the OECD said.
OECD chief economist Pier Carlo Padoan urged Greece to stick to the programme of reforms it agreed on with its international lenders.
“Greece must stay in the euro zone. This requires the government to implement – and I stress to implement – the programme agreed with the troika and other countries,” Padoan told Reuters in an interview.
“Staying in the euro zone will be costly, but leaving the euro zone will be much more costly for Greece and for the other countries,” he said.
(source: OECD, Reuters)
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