Core Views We expect a return to positive economic growth in 2014 following six years of depression. Thereafter we expect growth to remain well below the pre-crisis range. Underpinning positive economic growth will be a stabilisation in domestic demand, as well as a positive contribution from the current account. The prospect of further spending cuts and tax hikes will ensure that demonstrations and national strikes remain a key feature of the political landscape over the medium term.
Major Forecast Changes There are no major forecast changes this quarter.
Table Of Contents
Greece Business Forecast Report Q4 2014 Executive Summary. 5 Core Views..5 Major Forecast Changes5 Key Risks To Outlook5 Chapter 1: Political Outlook. 7 SWOT Analysis.. 7 BMI Political Risk Ratings 7 Domestic Politics.. 8 New Political Risks On The Horizon Economic and political risks have subsided sharply in Greece since 2012 as a result of a gradual improvement in the fiscal and economic outlook, and an impending conclusion to the second bailout programme. While this relative stability has been reflected in the rapid decline in sovereign bond yields, we warn that new political risks are building - particularly the threat of early parliamentary elections, which in turn could usher in a government led by the radical Syriza party. Table: Politic al Overview ..8 Long-Term Political Outlook . 10 A Decade Of Austerity And Instability Greece's political landscape is likely to become more tumultuous in the coming years. The legacy of fiscal profligacy and economic distortions will leave an indelible mark on the Greek economy and society, with political voices potentially becoming more fragmented. We therefore expect a prolonged bout of austerity and instability in the decade ahead. Chapter 2: Economic Outlook 13 SWOT Analysis 13 BMI Economic Risk Ratings... 13 Economic Activity... 14 Recovery Endangered By Weak Eurozone Demand The Greek economy is on the cusp of returning to positive growth following six years of depression. This will be underpinned by a stabilisation in household demand and a continued improvement in the trade balance, which underpins our 0.2% and 1.2% real GDP growth forecasts for 2014 and 2015 respectively. However, we warn that persistently weak growth in the eurozone, and insufficient monetary stimulus from the European Central Bank are increasingly posing a risk to the Greek recovery. Table: ECONOMIC ACTIVITY..14 Balance Of Payments.. 16 Current Account Surplus To Widen Over Medium Term Greece's current account returned to surplus in 2013 and, despite falling back into the red in the early part of this year, we still expect a positive outturn by end-2014. Moreover, on the back of a gradual recovery in international trade flows, we expect this surplus to widen over the medium term. However, there are growing risks to our core projections, not least a still fragile global economic backdrop and subdued demand in the euro area. Table: CURENT ACOUNT...17 Monetary Policy .. 18 Deflation Conspiring Against Debt Sustainability We believe that deflation has further to run in Greece and now expect a return to positive inflation to occur in 2016, from 2015 previously. This will be underpinned by weak domestic demand, a fractured credit transmission channel, relatively restrictive monetary policy (despite recent efforts by the European Central Bank to provide monetary stimulus) and the lingering strength of the euro. Moreover, we warn that prolonged deflation poses a risk to economic growth and debt sustainability. Banking Sector ... 20 AQR Compounding Deleveraging Pressures The Greek banking sector continues to deleverage, with the European Central Bank's Asset Quality Review increasing the incentive to reduce exposure to risky lending while also increasing government bond holdings. Having previously expected a return to positive asset growth in 2015, we now forecast another year of contraction. Chapter 3: 10-Year Forecast... 23 The Greek Economy To 2023. 23 Lower Growth Path To Emerge Over The Long Term With international credit conditions unlikely to return to pre-2008 levels over the foreseeable future, we expect both consumer and investment spending to be more subdued over the longer term, anchoring the Greek economy to a lower growth path than that seen leading up to the global credit crisis. Moreover, while trade rebalancing has closed the current account gap, the adjustment process has been driven more import compression rather than substantial competitiveness gains in the export sector, which suggests that Greece's longer-term growth trajectory will be adversely affected. Table: Long-Term Macroeconomic Forecasts23 Chapter 4: Business Environment. 25 SWOT Analysis 25 BMI Business Environment Risk Ratings.. 25 Business Environment Outlook. 26 Institutions... 26 TABLE: BMI BUSINES AND OPERATION RISK RATINGS26 Infrastructure... 27 TABLE: BMI LEGAL FRA MEWOR K RA TING.27 TABLE: LA BOUR FOR CE QUAL ITY..28 Market Orientation... 29 TABLE: ANNUAL FDI INFLO WS29 TABLE: TRADE AND INVESTMENT RATINGS.30 Operational Risk.. 31 Chapter 5: Key Sectors.. 33 Pharmaceuticals and Healthcare... 33 Table: Pharmaceutic al Sales , Hist oric al Data And Forec asts 34 Table: Healthc are Expenditu re Trends , Hist oric al Data And Forec asts 35 Table: Private Healthc are Expenditu re Trends , Hist oric al Data And Forec asts ... 36 Table: Government Healthc are Expenditu re Trends , Hist oric al Data And Forec asts . 36 Telecommunications... 37 Table: Telec oms Sect or - Mobi le - Hist oric al Data and Forec asts 39 Table: Telec oms Sect or - Wireline - Hist oric al Data and Forec asts 39 Other Key Sectors... 41 Table: Oil and Gas Sector Key Indicators.41 Table: Defence and Security Sector Key Indicators...41 Table: Infrastructure Sector Key Indicators...41 Table: Food and Drink Sector Key Indicators.42 Table: Autos Sector Key Indicators...42 Table: Freight Key Indic ators42 Chapter 6: BMI Global Assumptions. 43 Global Outlook. 43 Eurozone Downgrade On Poor Q214..43 Table: Global Assumptions.43 Table: Developed States , Re al GDP Growt H, %...44 Table: BMI VERSUS BLO MBERG CONSENSUS REAL GDP GRO WTH FOR ECASTS, %. 44 Table: Eme rging Markets , Re al GDP Growth , %..45