Greece΄s economy is expected to shrink 6.1% this year and 3.0% next year, the Organization for Economic Cooperation and Development said Monday, taking a bleaker view of the country΄s deepening recession than that held by Greece΄s official lenders.
Despite that, the OECD warned that the forecast in its latest economic outlook was subject to “substantial” downside risks, and said Greece must press ahead with efforts to cut its budget deficit and implement unpopular economic reforms
Failure to push those reforms, the OECD said, will make Greece΄s debt burden even more unsustainable, even as the country confronts rising unemployment and social unrest.
“Any weakening of the authorities΄ resolve to fully implement the adjustment program would increase the risk of debt default,” the report said.
“The government΄s ability to implement reforms is being tested by heightened social unrest. The banking sector΄s limited capacity to support growth poses additional risks to the outlook. Growth could be further undermined by a marked weakening in export markets.”
Greece΄s euro-zone lenders and the International Monetary Fund expect Greece΄s economy to contract by 5.5% this year and 2.8% next year–a forecast that is also embodied in the 2012 Greek government budget.
An anemic recovery is expected to take hold in 2013, but with the OECD forecasting just 0.5% growth.
The OECD estimates that Greece΄s budget deficit this year will reach 9% of GDP–in line with the government΄s own forecast–but higher than an initial 2011 target of 7.8%.
For 2012, the OECD sees the deficit at 7% of GDP, higher than the 6.7% projected by the government. But neither of those forecasts for next year take into account a planned 50% write-down on Greek debt held by private investors, something which will save the government 2% of GDP–or about EUR5 billion–in annual interest payments.
In its report, the OECD highlights six steps Greece should consider as contingency measures if the country΄s recession deepens and it fails again to meet deficit targets.
Those include further spending cuts, better monitoring of the state budget, tackling tax evasion, liberalizing Greece΄s closed services sectors and better targeting welfare programs towards lower-income groups.
The report also urges Greece΄s privately held banks–which are facing billions of euros in losses from the debt deal–to consider tie-ups with foreign banks.
(source: Dow Jones)
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