European Commission: Greek Economy Proved Resilient Despite Capital Controls

Greece’s economy proved resilient despite the introduction of the emergency bank holiday, capital controls, and heightened uncertainty related to prolonged programme negotiations, the European Commission noted in its winter economic forecast report for EU member states released on Thursday.

In the report it is noted: “Private consumption was stronger-than-expected, with households preferring to spend their bank deposits to avoid potential haircuts. However, fiscal drag is expected to weigh on disposable income and private consumption up to the first half of 2016. The tourism sector continued to perform exceptionally well during the autumn. Imports are projected to continue declining faster than exports, resulting to net trade contributing positively to growth. Business confidence, reflected in the Economic Sentiment Indicator and the Purchasing anagers Index, has also recovered relatively quickly from the sharp falls in the summer. Economic sentiment stabilised in October and improved further in December.”

According to Commission estimates, the Greek economy will be driven by zero growth in 2015 to a recession (-0.7 percent of GDP) in 2016.

“Steady implementation of structural reforms should gradually strengthen economic fundamentals, investment and other components of aggregate demand, leading to a projection of 2.7 percent for real GDP growth for 2017”, the Commission said in the report.

Meanwhile, the unemployment rate in Greece is estimated to drop from 25.1 percent in 2015 to 24 percent in 2016. It is expected to fall further to 22.8 percent in 2017.

Greece΄s fiscal deficit is expected to rise to -7.6 percent of GDP in 2015 and drop to -3.4 percent of GDP in 2016 and -2.1 percent of GDP in 2017.

The public debt of Greece is estimated to reach 179 percent of GDP in 2015 and further increase to 185 percent of GDP in 2016. A downward trend is expected from 2017 and onwards (181.8%).

Deflation in Greece is expected to reach -1.1 percent in 2015 and rise to 0.5 percent in 2016 and 0.8 percent in 2017.

Investments in Greece are expected to shrink further in 2015 (-8.4 percent) and 2016 (-3.7 percent) and increase by 12.8 percent in 2017.