Even as Greek Prime Minister Antonis Samaras said the pending release of a $56.7 billion in a first series of installments in a second bailout of $172 billion has saved Greece, the Organisation for Economic Co-Operation and Development (OECD) said the country’s recession, now in its fifth year, will linger.
In a report released on Nov. 27, the Paris-based group said that Greece needs reforms to grow its economy instead of relying on bailouts, loans and constant austerity measures that have crippled the economy and buried Greeks with pay cuts, tax hikes and slashed pensions.
The economy will not recover before 2015, after seven consecutive years of recession, the OECD predicted in its economic outlook, a year longer than the government forecast.
“A return to positive growth is projected only towards the end of 2014 as world trade strengthens, confidence returns and competitiveness improves,” said the OECD, which expects Greek GDP to shrink by 1.3 percent in 2014, compared with a growth forecast of 0.2 percent that year by the Greek government. The OECD expects a 4.5 percent contraction in Gross Domestic Product (GDP) next year.
“If growth proves lower than assumed in the government’s fiscal plans, then the automatic stabilizers should be allowed to operate, even if this means missing the set targets,” the report states. “The most vulnerable strata will have to be protected from any further social cuts,” it added.
Greece’s economy has shrunk by nearly 25 percent since its recession started in 2008, hit hard by the austerity measures imposed by the country’s international lenders, the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) to finance its rescues.
Prime Minister Antonis Samaras narrowly pushed through Parliament earlier this month a $17.45 billion new spending cut and tax hike plan, hoping to shrink its budget deficit to 3.2 percent of GDP in 2016 from 9.4 percent last year.
But the OECD said the government has a blindspot by not concentrating on growth and focusing only on austerity and cuts. The group said Greece needs social spending to absorb some of the recession and focus on structural forms to boost growth.
“The agreed consolidation measures should be put in place. But if growth proves lower than assumed in the government’s fiscal plans, then the automatic stabilizers should be allowed to operate, even if this means missing the set targets. The most vulnerable in Greek society need to be better protected from cuts in social spending,” the OECD said.
Greek households’ disposable income shrank by about 14 percent year-on-year in the second quarter of 2012, statistics agency ELSTAT said, as wages dropped by 15 percent and social benefits by 9.5 percent. Taxes soared by 37 percent over the same period, ELSTAT said.
The budget deficit is expected to end up at 6.9 percent this year and drop to 4.6 percent in two years’ time. The current account deficit is seen dropping to 2.3 percent in 2014 from 5.5 percent this year, while exports are expected to grow by 6.1 percent by 2014 and imports to shrink by 3.2 percent.
The report adds that unemployment, now at a record 25.1 percent, will continue to break one record after another and acknowledges that the economy suffered additional pressures this year owing to the tough but absolutely necessary fiscal adjustment process that has led to a reduction of salaries, trust and external demand.
(Sources: Kathimerini, Reuters)
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