News Analysis: Optimism edges up for Greek economy, challenges remain

Source: Xinhua| 2018-01-28 20:03:24|Editor: Jiaxin
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by Maria Spiliopoulou, Alexia Vlachou

ATHENS, Jan. 28 (Xinhua) -- Eight years after the start of the severe debt crisis which brought Greece at the brink of default, optimism edges up for the economy, as financial indexes improve.

However, challenges remain and Greeks must stay committed to fiscal discipline and the reform path after the end of the third bailout this summer to ensure sustainable growth, Greek scholars told Xinhua, echoing recent remarks by the Greek government, international creditors and foreign analysts.


The year 2018 will be one "filled with challenges and important opportunities that Greece should not miss," Greek Prime Minister Alexis Tsipras said during a cabinet meeting earlier this January.

After eight years of tough austerity and reforms under bailout programs Greek economy is set to be freed from strict supervision and fully return to capital markets.

As European officials also voiced optimism of better days ahead, credit ratings agencies such as Standard & Poor (S&P) which announced the upgrade of Greece's credit rating a week ago, acknowledged that the economy is on a path to recovery.

"The upgrade reflects Greece's steadily improving general government finances and gradually recovering economic prospects," S&P analysts said.

Greece ran primary fiscal surpluses over the past two years and exited recession and the positive outlook on Greece reflects the potential for further improvement from the policy and financing environment over the next months, according to the agency's experts.

"The prospects of the Greek economy over the next months are overall good for several reasons. First of all economy starts from a low base, then there are some reforms that have been having a positive impact, but primarily there is political stability. There is not much controversy to the EU partners, Greece is also benefiting from the external environment which has been positive," Nikos Vettas, professor of economics at the Athens University of Economics and Business and Director General of the Athens-based Foundation for Economic and Industrial Research (IOBE) think tank told Xinhua.

"Now over the longer run it becomes an open question to what extent the prospects of the economy will remain strong, because that depends on the level and quality of investments that will happen into the country. There are the objective conditions, high growth rates, but that will depend on the continuation of the reform program," he noted.


During the adjustment program, there have been some significant successes, but also failures, the professor explained. Greece has fixed its "twin deficit" which basically means it doesn't produce fiscally any deficit, imports and exports have been balanced and there have been significant reforms in modernizing parts of the public administration for instance on the tax collection.

"What remains a problem is that overall public administration is not functioning as efficiently as it should. For instance, in the justice system there are significant delays and the education system is not very modern which keeps production activity out of the country. Progress has been made, but significant more work needs to be made," Vettas stressed.

The Greek economy is forecast to grow by 2.1 percent in 2018 after a growth rate of 1.5 percent in 2017, boosted by strong exports growth, according to IOBE's quarterly report.

According to the report, the contribution of investments to GDP growth was expected to reach 16 percent, while it also projected higher performance in the Public Investment Program, extrovert sectors and privatizations. Without a recovery in investments, the economy will once again lapse into a painful stagnation, the expert warned.

Professor Loukas Tsoukalis, president of the Hellenic Foundation for European and Foreign Policy (ELIAMEP) think tank, shared the view that the Greek economy seems to be finally coming out of the crisis during which Greece lost approximately one quarter of its GDP, unemployment reached record heights of 27 percent and the average Greek household struggled to make ends meet, cutting back on all expenses. IOBE expects the unemployment rate to continue falling in 2018 to 20 percent, maybe lower.

"It is a general belief that the Greek economy has hit rock bottom and it is now slowly recovering. Greece has major strategic and geographic advantages, it has an educated human power which is also much underpriced, and it has underpriced assets. So, under the right conditions, Greece should not only recover, it should take off," Tsoukalis said.

The right conditions include not only further reforms, but also a more generous approach to the further relief of the Greek public debt which should be discussed in coming months, he added.


"In terms of sectors which are the comparative advantages, Greece specializes in the food and drinks sector and services which mean not only tourism, but also shipping, transportation and so on, because of its geography and its history," the expert noted.

"Under the right political conditions in Greece and the rest of Europe one should expect a very considerably increase in foreign investment in the country," he said, explaining that Greek investors still do not have so much access to liquidity.

"The main weakness of the country remains the function of the state, bureaucracy and a judicial system that takes a long time to deliver. So it is more the public sector that remains an impediment to growth. Those problems should be addressed with further reforms," Tsoukalis underlined.

Eyes will also remain focused on the banking system. IOBE expects a gradual recovery of confidence, with significant challenges remaining in 2018. Deposits were expected to continue their gradual recovery, banks to reduce their non performing exposures (NPEs) and to further relax restrictions of capital controls imposed in 2015.

"We expect NPE reductions to accelerate this year, supported by a pick-up in the economy, sales of NPE portfolios already announced and last year's introduction of electronic auctions for foreclosed properties... But progress will hinge on a stable operating environment," Fitch Ratings' experts noted in a recent report.

A big wager for Athens is also the reduction of inequalities in social indices and fair growth, as the Greek government has repeatedly stressed.

Although the economy has returned to growth, this has still not resulted in an increase in citizens' disposable income, said a report released last week by the Hellenic Federation of Enterprises (SEV).