Consensus on further support

Consensus on further support

Greece’s economy will end up among those hardest hit by the pandemic, according to the estimates of international organizations’ recently published reports.

The European Union, the Organization for Economic Cooperation and Development and the International Monetary Fund agree that the structure of the Greek economy, with its great reliance on tourism and small and medium-sized enterprises, will be unable to avert a deep recession this year. They also express concern at the recurrence of Greece’s perennial problems, such as its nonperforming bank loans.

As for the economic recovery, a multitude of questions and uncertainties overshadow the prospects for 2021, with the OECD, which on Tuesday published its Economic Outlook, expecting a near stagnant +0.9% growth rate next year and a major rebound in 2022 (+6.6%). This means that it will be more than two years before the 2020 losses are covered in full.

The European Commission and the IMF are more optimistic about a swifter recovery next year, but both speak of unprecedented uncertainty and downside risks, and the possibility of a further deterioration in economic activity in case of an extended lockdown. While there is consensus that the advent of the coronavirus vaccine will determine how things shape up in the near future, for Greece there is the added concern that it may take longer to benefit as the mood for traveling is not expected to recover anytime soon.

Both the IMF and the OECD argue that the support measures should not end early in Greece. Tuesday’s OECD report stressed that the weak employment rate in the country makes it necessary to increase the targeted support of incomes. A day earlier, the IMF had noted that the government needs to maintain the targeted fiscal support, safeguarding fiscal sustainability in the medium term.

The IMF has long moved away from its position in favor of high primary surpluses, instead proposing growth-friendly measures for the support of the weakest so as to support economic activity in its entirety.

Brussels is more reserved on that matter, though, noting that the 2021 support measures had better be temporary, including those that concern reforms.

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