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WSJ: Greece's Economic Recovery Elusive

newego_large_t_1101_54452446Economic recovery in Greece seems elusive, despite the optimistic forecasts of the country’s government and foreign creditors, a Wall Street Journal report says.
The International Monetary Fund, through the head of its team in Greece, recently said that the Greek economy is stagnating and that recovery could possibly be next year.
The report says that Greek exports are on a downward slope, hampered by capital controls, high taxes and a lack of credit. The report cites a Greek businessman saying characteristically that, “There is no chance we will see a rebound unless we see some bold political decisions that would introduce a more stable business environment.”
The report further says that Greece and creditors assume a 2.7% growth in 2017, yet private-sector economists believe next year’s growth could be closer to 0.6%. Missing the growth target agreed might lead to the need of additional austerity measures that would further hurt the economy.
Negotiations with creditors over the second bailout program review are delayed, thus delaying further bailout funds that could apply to boosting the economy.
The report quotes Economy Minister Giorgos Stathakis saying that, “We are at the turning point at which we can we say with certainty that we are leaving the recession behind us.”
Prime Minister Alexis Tsipras told the WSJ last week that the Greek economy will get a push from investors before the end of the year, when lenders are expected to provide some debt relief and the country qualifies for the European Central Bank quantitative easing program.
However, data tell a different story. Unemployment remains high, retail sales and tourism revenues are disappointing. The number of insolvent businesses in the first half of the year reached the highest level in three years.
Yet, exports are the biggest worry, WSJ says. Greece’s bailout plan relies on shifting the economy away from state-based toward exports and related private-sector investment. Bank of Greece data show that until July, exports were 7.1% down from the same period last year.
With exports showing a continuous upward trend from 2009 onwards, the imposition of capital controls in June 2015 caused a downward slope on exports. To pay foreign suppliers, Greek companies have to undergo a bureaucratic process involving the finance ministry and banks. Nearly all foreign suppliers to Greek companies demand full payment in advance, in case controls get worse and cause payment delays. At the same time, Greek banks hardly give businesses any loans.
Furthermore, the latest increases in taxes and social-security contributions this summer are weighing down businesses. Corporate income-tax rate rose to 29% from 26% in January. Also, Greek companies now have to pay 100% of their estimated annual taxes up front, versus 80% previously. A higher dividend tax follows in 2017.

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