The International Monetary Fund has lowered its projections on Greek growth from last fall and warned against “unreasonable forecasts” and “unjustifiable frameworks” by the country’s European creditors.
In its World Economic Outlook, published on Tuesday, the Fund argued that growth in Greece this year will come to 2.2 percent against a forecast of 2.8 percent last October, but this will not put the sustainability of the country’s debt at risk. It actually estimated a major gross domestic product increase of 4.2 percent for the last quarter of 2017.
Notably, the budget estimate for this year’s growth is 2.7 percent, and after the downward revision of the 2016 GDP data and delays to the second bailout reform there have been much greater adjustments to Greek growth forecasts for this year by banks and rating agencies.
For 2018, the IMF estimated that growth will amount to 2.7 percent, though in the October-December 2018 period growth will be at just 2 percent. In 2022 it will drop to an anemic 1 percent, the IMF expects.
In an interview to representatives of leading European newspapers, IMF’s managing director Christine Lagarde, said that the Fund will participate in the Greek program only if the country’s debt is judged as sustainable.
In addition, she said that talks over the Greek debt must first be completed before the IMF decides on whether or not it will rejoin the bailout as a lender.
At the same time, she criticized the European primary surplus of 3.5%. “In the long term, we believe that a 1.5% primary surplus is sensible given all that the economy has gone through, and given the Greeks’ capacity to reform. If the Europeans determine differently, then we need to take that into account. But we cannot adopt unreasonable forecasts or build unjustifiable macroeconomic frameworks.”
Among others Lagarde said “there is the longer-term fiscal path going forward, which will determine the debt sustainability analysis. In both areas, we need to converge as much as possible. But clearly, whatever the IMF would finance–if we were to join–would be on the basis of both the fiscal path and our debt sustainability analysis.”
PS The permanent question to IMF’s projections: did the Fund use the right or wrong calculators?