The European Union has sharply cut the growth forecast for Greece on Thursday, sparking worries that the long delay in the second review of the third bailout program was damaging the economy. European lenders are in a row the International Monetary Fund over the sustainability of the Greek debt. The IMF considers the 3.5% Primary Surplus targets sets by the Europeans as too high, wants debt relief.
The Greek economy will grow by 2.1 percent in 2017, the European Commission said in its spring economic forecast. EU’s prediction made in February was 2.7 percent.
The Commission also slashed the growth forecast for 2018 to 2.5 percent from the earlier prediction of 3.1 percent.
“After a setback in the fourth quarter of 2016, the recovery is expected to restart this year. However, the recovery looks set to remain moderate due to the delays in the closure of the second review of the ESM programme,” the Commission said in the accompanying statement.
Improving consumer and investor sentiment is expected to be the fundamental driver of growth in the near term, the Commission said also adding “public finances strongly outperformed the 2016 fiscal target and the outlook remains positive.”
At a press conference presenting the Spring Forecasts, EU Commissioner Pierre Moscovici justified the slashes with the delays and urged Greece to proceed with the conclusion of the review, when everybody knows that the problem lays in the disagreement between EU and IMF over debt relief.
“If Greece wants strong growth, it should conclude the review soon,” Moscovici said.
Commission spokeswoman Annika Breithardt tweeted Thursday morning:
- “On fiscal performance in #Greece: outcomes significantly outperformed targets in both 2015 and 2016”
- “We remain confident that #Greece can reach the agreed primary surplus targets in 2017 and 2018.”
Greece and its creditors agreed a third, 86-billion-euro bailout deal in August 2015, but a row with the IMF over debt relief has held up the program.
A compromise is required to unblock a 7-billion euro bailout tranche Greece needs for debt repayments in July.
The issue of Greek debt is expected to be discussed at the G7 Summit that starts today in Bari, Italy.
German media like the Sueddeutsche Zeitung write that finance minister Wolfgang Schaeuble might feel the pressure for debt relief measures for Greece at the meeting of Washington Group today at the sideline of G7.
Additional debt relief for Greece has proved a contentious point for many of its European creditors including powerful Germany, where additional concessions are unpopular with an electorate called to a general election in September.
EU’s macroeconomic forecasts are produced by the Directorate-General for Economic and Financial Affairs (DG ECFIN).