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Bank of Greece report: economy rebalancing, but 28% unemployment for 2013

Greece is moving forward. Like a wild horse in the prairie, the debt-ridden country is galloping towards economic recovery and prosperity for all. If only there were not the grimy numbers predicting that the wild cart called Greece has still long way to go, as week by week, the economic recovery is been set a year later…

On Wednesday, Giorgos Provopoulos, the governor of the Bank of Greece, submitted the bank’s Report on Monetary Policy 2012-2013 to the Speaker of the Greek Parliament and the Cabinet. In the BoG press release, we read

that “there are strong indications that the economy is re-balancing”, that “the Grexit is now remote” and that “confidence in Greece’s economic prospects is  gradually being restored”.

At the same time, we read that “unemployment is still on the rise”, that it would “stabilize at 28% in 2013” and that it is “expected to start declining in 2015”.

In March unemployment was at 27% and in April the government heralded that “finally there was more hiring than firing”.

Wasn’t it beginning of the month when finance minister Yiannis Stournaras had claimed that unemployment was about to start declining in 2014? It makes apparently no difference if one of the over 1.3 million jobless in Greece finds a job in the second half of or the first half of 2015.The European Commission is anyway alarmed and is seeking urgent measures to combat unemployment.

Some excerpt from the BoG report:

“The economy is rebalancing

In recent months there have been stronger indications, both at home and abroad, that the economy is rebalancing. These indications can be summarised as follows:

– The possibility of a Greek exit from the euro area is now remote, as widely acknowledged by analysts and international organisations.

– Confidence in Greece’s economic prospects is gradually being restored, as shown by the sharp decrease in the yield spread between Greek and German ten-year government bonds.

– The Greek banking system has weathered the storm and proved resilient to the severe crisis; it is currently undergoing a process of restructuring on new, healthy foundations. This is the first crucial step towards restoring normal financing conditions in the real economy. It is worth noting that the stability of the banking system was shielded from the tangible risk of a spillover from the Cyprus crisis. Thus, the peak in uncertainty triggered by the developments in Cyprus proved short-lived, putting a halt to the outflow of deposits observed in April 2013.

– The twin deficits (fiscal and external) have declined considerably: fiscal consolidation has made remarkable progress, and a primary surplus seems likely to be achieved in 2013, while the external balance has also improved substantially.

– The implementation of the stabilisation programme is judged to be well on track, and disbursements under the loan agreement are continuing smoothly.

However, output continues to contract and unemployment is still rising

These indications are decidedly positive and, if sustained, herald a future improvement in the real economy. However, the recession and the rise in unemployment continue. Adjustment has taken a heavy toll in terms of output, employment and disposable income — the reason being that it was necessary to address, within a short space of time, accumulating chronic problems and imbalances that, if left unchecked, would surely have led to a default and an exit from the euro area. In the end, the default was averted thanks to substantial progress in the area of fiscal adjustment, which made possible the continued financial support from our partners. The extent and duration of the recession could nevertheless have been lessened, had structural reforms to promote the efficient functioning of the public administration and markets been pursued more energetically and boldly.

An economic recovery is possible in 2014 if the improvement in economic sentiment takes hold and structural reforms are speeded up

If the implementation of structural reforms can be speeded up and the improvement in economic sentiment takes hold, it is plausible to expect that the results will soon be felt in the real economy as well. A prerequisite for recovery is the continued steadfast and faithful implementation of the stabilisation programme.

According to the Report, GDP is expected to contract at a rate of close to 4.6% this year, and unemployment to stabilise at around 28%. A return to positive growth is anticipated for 2014, while unemployment should start to decline in 2015.

Inflation is projected to turn out at about -0.3% in 2013 and core inflation at -1.1%. At the same time, it is estimated that the loss of competitiveness over the period 2001-2009 will be more than recovered by end-2013.

Finally, based on available evidence, the current account deficit is expected to narrow further to below 3% of GDP in 2013 and to hover around 2% in 2014.”

Read the full BoG report here and take a look at the bank sector recapitalization aspects  as well as the policies needed to support the recovery.

PS From what I hear and read around so far the economic recovery is based on ‘indications” (BoG), “hopes” and “beliefs” (Stournaras).

How was Aretha Franklin saying?

“The moment I wake up
Before I put on my makeup
I say a little pray for you
While combing my hair now,
And wondering what dress to wear now,
I say a little prayer for you” – and me!

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