On Wednesday, Greek prime minister Alexis Tsipras told Reuters that the country could beat expectations and report an expansion in 2016.
The consensus among economists is that the Greek economy will expand in 2017, and in their latest Economic Outlook the OECD also stated that “growth is projected to turn positive in the second half of 2016”. Positive trends are already visible, yet it might be too soon to call this the beginning of a recovery.
One of the most promising measures is the strong tourism figures. In July this year, 4.7 million travellers reached Greece, nearly six per cent more than the already strong figures from last year. The number of tourists from the EU increased by a staggering 19 per cent, largely due to the perceived risks of travelling to Turkey and northern Africa. The number of nights spent in tourist accommodations reached record high in the 12-months to September.
This is particularly good news for Greece considering the country depends on tourism for about 20 per cent of its GDP, according to the association of Greek tourist enterprises.
Tourism is a driver behind the recovery in employment in the accommodation and food service sector. Employment in the sector is now above pre-crisis levels while total employment is still 20 per cent below 2008 levels, despite improvements in the latest months.
The Greek manufacturing sector is also improving. The Markit purchasing manager index showed that the sector was expanding in August, with new export orders showing the sharpest increase in over two years. This is in line with improvements in the actual industrial and manufacturing production indices.
Positive trends are visible also in the consumer sector. Car registrations, for example, increased by 45 per cent in the 12-months to May this year since their lowest level in March 2013. Back then, they were about 80 per cent below their peak in 2004.
Yet despite all these positive signs, the Greek economy has not quite reached a turning point.
Even the strong tourism figures hide that the fact that revenues from tourism actually fell in July compared to the same month last year, particularly among German tourists. This could indicate that tourists were attracted by discounted prices, or it could point to tax evasions practices.
Frank Gill – Senior Director EMEA Sovereign Ratings at S&P Global Ratings – expects the economy to stage a ‘statistical recovery’ next year, meaning that the economy will bounce back largely because of the very low base it reached after deep, prolonged and multiple recessions.
The Greek government had not been paying its suppliers because of the its serious problems of cash flow. But this year Greece’s Third Economic Adjustment Programme “includes plans to pay down an estimated three per cent of GDP of arrears to the private sector, where firms are likely to clear their own wage arrears to employees, who may then spend them”, explains Mr. Gill.
The cash inflow of the arrears payments are expected to be the main drivers of the recovery in the second half of the year, but they are only a transitory factor.
The real problem is the lack of investment, particularly in the private sector. Although investment grew in the second quarter of this year, the measure has been volatile in the last three years and there have been no signs of a coherent growth.
A strong recovery in investment is particularly difficult as the banking system has been stymied by its high share of non-perming loans which have nearly hit 40 per cent.
In response, the government has passed laws that could potentially enable some commercial banks to sell non-performing loans. But it would take years for this to be put into practice. As Mr Gill put it, “it’s very early days to identify some potential buyers for these NPL”.
According to the OECD the implementation of planned social policies – such as the Guaranteed Minimum income – would alleviate poverty, which rose dramatically during the crisis. Fighting tax evasion and rationalising the pension system is also – somewhat optimistically – expected to help pay for those policies. But the report also warns of ‘rising global risks’ which pose a threat to Greek exports growth, not to mention the high and rising price that Greece is having to pay due to the refugee crisis.
Given these indicators Mr. Gill says “it’s hard to identify anything that could drive sustained growth apart from a statistical recovery”.
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