GREECE - OECD.org

1 3. DEVELOPMENTS IN INDIVIDUAL OECD AND SELECTED NON-MEMBER ECONOMIESOECD ECONOMIC OUTLOOK, VOLUME 2018 ISSUE 2 PRELIMINARY VERSION OECD 2018120 GREECEGDP growth is projected to edge up to in 2019, before moderating slightly in2020. The large contribution of exports to growth will decline, but the recovery ofhousehold consumption and investment will gain traction with rising implementation of the government s reform programme will support therecovery. Unemployment, while still high, will continue to budget is projected to reach the authorities medium-term primary surplustargets. Fiscal policy is becoming supportive with reductions in corporate income,dividend and property taxes and in social security contributions. The debt relief andpolicy measures recently agreed with European partners cap GREECE s gross publicfinancing needs, reintegrate GREECE into the European Semester framework andestablish regular policy monitoring.

2 The accumulated government cash buffer providessecurity against external recovery continuesExports have grown strongly, led by tourism and non-oil goods. Industrial productionhas picked up, and confidence indicators have improved. Employment growth, while solid,has moderated, but unemployment continues to fall and a rising share of new jobs arefull-time. Wages are rising and private consumption is growing after prolonged , unemployment and spare capacity remain financing remains a large constraint on capital spending and progress hasbeen slow in attracting new foreign direct investment and in privatising state-ownedassets. Bank lending to the more dynamic sectors, such as tourism and trade, hasstabilised, but overall lending is still declining. Deposits are gradually returning as capitalcontrols are eased. Emergency liquidity assistance to banks has been nearly are achieving their non-performing loan reduction targets, mostly through sales orwrite-offs.

3 Non-performing business and consumer loans are being resolved faster thanGreeceSource:OECD Economic Outlook 104 2 12 8 4048121610203040506070802007200920112013 201520172019% of GDP % of GDP Government primary balance Government revenues Government expenditures The budget is in a substantial primary surplus809010011012013080901001101201302 0112013201520172019 Index 2015 = 100 Employment, personsReal private consumptionReal net household disposable incomeHouseholds economic conditions are starting to recover3. DEVELOPMENTS IN INDIVIDUAL OECD AND SELECTED NON-MEMBER ECONOMIESOECD ECONOMIC OUTLOOK, VOLUME 2018 ISSUE 2 PRELIMINARY VERSION OECD 2018121mortgages, as the latter have greater legal protection.

4 Banks equity prices remain volatileon concerns over their ability to raise new funds if reforms and improving the spending mix support the stability of thepublic financesThe government expects to exceed the of GDP primary surplus target in 2018, asrevenues grow faster than spending. The 2019 draft budget projects meeting this targetwhile supporting activity and social inclusion. Policy measures include: lowering corporateincome, dividend and property tax rates; lowering social security contribution rates forsome self-employed and youth; introducing additional social welfare measures; andhalting the reduction in the number of civil servants. If slower growth jeopardises fiscaltargets or if the budget balance outperforms targets, the government should prioritisetargeted social and infrastructure investments and keep broadening the tax has agreed with its European partners on the arrangements to follow theconclusion of the third Stability Support Programme.

5 Further debt measures that extendloan maturity and defer interest payments improve GREECE s debt sustainability into theGreece:Demand, output and prices1 2 &XUUHQW SULFHV (85 ELOOLRQ *'3 DW PDUNHW SULFHV 3 ULYDWH FRQVXPSWLRQ *RYHUQPHQW FRQVXPSWLRQ *URVV IL[HG FDSLWDO IRUPDWLRQ )LQDO GRPHVWLF GHPDQG 6 WRFNEXLOGLQJ 7 RWDO GRPHVWLF GHPDQG ([SRUWV RI JRRGV DQG VHUYLFHV ,PSRUWV RI JRRGV DQG VHUYLFHV 1HW H[SRUWV Memorandum items*'3 GHIODWRU B +DUPRQLVHG LQGH[ RI FRQVXPHU SULFHV B +DUPRQLVHG LQGH[ RI FRUH LQIODWLRQ B 8 QHPSOR\PHQW UDWH RI ODERXU IRUFH B +RXVHKROG VDYLQJ UDWLR QHW RI GLVSRVDEOH LQFRPH B *HQHUDO JRYHUQPHQW ILQDQFLDO EDODQFH RI *'3 B *HQHUDO JRYHUQPHQW JURVV GHEW RI *'3 B *HQHUDO JRYHUQPHQW GHEW 0 DDVWULFKW GHILQLWLRQ RI *'3 B &XUUHQW DFFRXQW EDODQFH RI *'3 B &RQWULEXWLRQV WR FKDQJHV LQ UHDO *'3 DFWXDO DPRXQW LQ WKH ILUVW FROXPQ.)]]]]]

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7 Following the agreement, ratings agencies upgraded Greekgovernment debt ratings and bond yields have kept trading in a range well below the levelsof recent GREECE s recovery requires stronger investmentGDP growth is projected to edge up in 2019 as the recovery in private consumption andinvestment gains traction, before moderating somewhat with softer external conditions in2020. A budget surplus at the level of the medium-term target will support domesticdemand in 2019, as well as supporting household incomes and recent growth is encouraging, the recovery remains fragile. Investment remainsa key uncertainty for a sustained recovery. The scale of banks non-performing loansremains a vulnerability. Deteriorating financial market and external conditions, due in partto developments in Italy and Turkey, may limit new investment. While public debt remainshigh, servicing costs are now capped and cash buffers provide an additional cushion.

8 Bymaintaining sustainable fiscal policy and the reform momentum, GREECE can contain newrisks to public finances and growth. Continued improvements in relations with GREECE snorthern neighbours could further strengthen the investment and trade recovery. Deeperreforms to improve product markets, professional services and competitiveness, andpro-growth public investments and social transfers would strengthen GREECE s economicoutlook and inclusiveness.