Greece has been through a lot in the last decade, and even if it will be bound by its past actions and collapse for a significant time, it still has the opportunity to prosper from a healthy economy and capital flow in the country.
When it comes to the Greek GDP, it experienced certain fluctuations in the past five years with rising and dropping, whereby it never reached its high from 2008. In 2016, the GDP was mostly generate by private consumers and investors. Since the consumption rate went up, it also contributed to increased import rates, whereas exports had rather a negative contribution not being able to keep up with the imports. Such a misbalance was also affected by the short-term recession in 2015, which accounted for a slower economic activity. Still, 2016 indicated that the manufacturing business and retail sector improved. It was also noticed that the labor market changed for the better since the employment rate increased by 2.3%. Employment was kept under 23% throughout the year. The Third Quarter 2016 Report also indicated a positive growth in labor productivity, whereby it broke the 5-quarter cycle of negative growth.
Even if these little changes represent a glimpse of hope, unemployment in Greece is still high, especially when it comes to vulnerable groups like unemployment of the youth which stands at astonishing 45%.
2017 Economic Projections
In 2017, it is projected that unemployment will drop by one more percent coming down to 22.5%. Real growth is also expected to rise by 1.7% this year. This projection relies on positive developments, as well as the plan to include Greece in the quantitative easing program by ECB which will be extended until December 2017.
The GDP estimate was also based on the 2016 projection. Still, certain risks prevail that could account for a slower growth rate since the market and the economy could take another turn. Greek banks are also held back in financing the real economy since they are burdened with non-performing loans (NPL) at this time which put limits on the liquidity and subsequently make depositors withdraw their financial assets.
It is also predicted that by the time the Q1 of this year is completed, there will be an agreed policy on debt servicing. Greece and economists are waiting for the completion of the 2nd review which should bring clearer guidelines on the risks and economic development. Creditors and the government should be aware of the importance of the 2nd report since it deals with critical issues like pensions, market liberalization, taxes, further privatization measures, and others.
They should also come up with a plan how to regulate the NPL. A lot of things that influence the economy of the country depend on the outcome of the review. The ECB QE would also help the process of implementing reforms properly, as well as guide the country back to key markets which have the potential to strengthen the economy. Even if the review was supposed to be completed by now, it is still lingering causing unnecessary uncertainty.
It was already mentioned that the GDP mostly depends on consumption, and a simple rule is that consumers buy when they have the needed income. This further indicates that the labor market stabilized and that incomes increased.
Greece has a long way to go, and the forecasts on a quarterly basis might provide a general framework of where the economy is heading, but it does not guarantee that things will evolve as projected,especially because the projections rely on a limited number of data.