European Economy Forecast – Spring 2016. things looks better for Greece with recession at 0.3% and not 0.7% as predicted by the country’s lenders. In general, the EU forecast for Greece expects “Growth to return in the second half of the year.” The Economy more resilient than expected in 2015. Real GDP in 2015 turned out to be slightly negative, at -0.2% that is over 1pp. better than expected after the imposition of capital controls in July 2015. Economic activity was backed by the surprising resilience of private consumption, positive net exports and by an acceleration of public investment at the end of the year.
Growth to return in the second half of 2016
Greece’s real GDP is forecast to contract by 0.3% in 2016, slightly less than expected in the winter forecast, as the adverse trends in the second half of 2015 turned out more moderate than projected.
Domestic demand is projected to mainly drive the contraction. While fiscal consolidation should continue to weigh on household disposable income, the fall in public and private consumption is expected to be partly offset by a positive contribution of net exports backed by another good year for tourism and positive trends in the export of goods.
Investment is projected to slightly decrease as a result of inert credit conditions.
Subsiding uncertainties following the conclusion of the first review of the ESM programme should support the gradual relaxation of capital controls and fuel investment.
The economy is expected to start growing again in the second half of 2016 and should gather strength in 2017 as domestic demand
accelerates with the help of EU structural funds, and of liquidity injected via the clearance of government arrears.
Greece’s current account deficit has been improving since 2011 and it is expected to turn positive in 2016, as past and ongoing structural
reforms improve external competitiveness.
Unemployment fell in 2015 and is projected to continue declining over the forecast horizon, amid marked declines in wage growth and significant reforms over recent years, the gradual recovery of the economy, and employment schemes promoting labour participation.
HICP deflation continued in 2015 and prices are projected to fall further in 2016 – albeit at a moderate pace – as the impact of lower oil prices and weak demand are expected to outweigh the inflationary impact of a VAT hike.
HICP inflation is projected to turn positive in 2017.
Uncertainties around the forecast remain large. The projected recovery is contingent on the timely conclusion of the first review of the ESM programme, as well as positive financial market and trade developments. Upside risks could come from a faster -than-expected pick
-up in business and consumer confidence.
The downside risks are related to a failure to fully deliver on the reform programme, a higher-than-expected negative impact of the refugee crisis on trade and tourism, as well as the slowdown in global trade.
PS I want to see the “domestic demand” when Value Added Tax rises from 23% to 24%.