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Greece Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views

With Greece's creditors not offering significant debt relief and the left-wing Syriza government attempting to reduce the fiscal deficit via tax hikes instead of expenditure cuts, Greece's economy will remain on a very low growth trajectory and will remain dependent on external aid by the time its current deal expires in 2018. This view is underpinned by severe structural issues facing the country, namely an unsustainable government debt load, a dire demographic profile and Greece's scant progress improving productivity over the past few years. Although Greece's budget deficit is set to diminish in the years ahead, the country will remain dependent on bailout funds and debt relief measures from its creditors if it is to make any dent in its massive debt burden of 180% of GDP. The ruling Syriza-led coalition will continue losing support as disillusioned voters move to opposition parties. Greece will run current account surpluses for the next few years, reducing previously systemic risks posed to macroeconomic stability from its large external imbalances.

Table Of Contents

Greece Country Risk Report Q4 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Growth Drivers Remain Elusive.....................................................................................................................................................8
After another contraction of real GDP in 2016, Greece will remain stuck in a low growth trajectory in the coming years as fiscal
consolidation demands further internal devaluation and tax hikes. Renewed tensions between Greece and its creditors will keep political
and economic uncertainty elevated, stifling investment.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS..................................................................................................................................................10
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Fiscal Policy And Public Debt Outlook.................................................................................................................. 11
Debt Burden To Remain Substantial...........................................................................................................................................11
Stalled structural reform implementation is again leading to a standoff between Greece and its EU and IMF creditors. Although Greece's
budget deficit is set to diminish in the years ahead, the country will remain dependent on bailout funds and debt relief measures from its
creditors if it is to make any dent in its massive debt burden of 180% of GDP.
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................12
External Trade And Investment Outlook................................................................................................................ 13
Improving Trade Balance Will Push C/A Into Surplus...............................................................................................................13
A shrinking trade deficit will push Greece's current account into surplus over the next two years. This will be driven by muted imports
and a strong tourism sector, which means that we forecast a current account surplus of 1.1% and 0.9% of GDP in 2016 and 2017,
respectively.
Outlook On External Position.................................................................................................................................. 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.........................................................................................................................................15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................15
TABLE: TOP FIVE GOODS EXPORTS...................................................................................................................................................................15
TABLE: TOP FIVE GOODS IMPORTS....................................................................................................................................................................15
Currency Forecast.................................................................................................................................................... 16
EUR: Heading To Parity As Fiscal Woes Take Their Toll..........................................................................................................16
We have revised down our forecast for the euro, now seeing the currency weakening gradually over the coming years. The euro is
caught between the risk of rising inflation expectations on the one hand and a rising risk premium over the future of the eurozone on the
other.
TABLE: BMI EUROZONE CURRENCY FORECASTS............................................................................................................................................17
TABLE: DOWNWARD REVISIONS.........................................................................................................................................................................17
Monetary Policy........................................................................................................................................................ 18
ECB Policy: Looser For Longer...................................................................................................................................................18
The economic slowdown - caused in part by the UK's vote to leave the European Union in June - has increased the chances that
monetary policy tightening in the eurozone will be pushed back even further. But even more importantly, the potential for systemic crises
and the long-term debt outlook increasingly suggest that the path of least resistance for the ECB will be to keep short-term rates as low
as possible for as long as possible, while extending quantitative easing.
TABLE: ECB REFINANCING RATE FORECASTS (%)...........................................................................................................................................19
Chapter 2: 10-Year Forecast................................................................................................................... 23
The Greek Economy To 2025.................................................................................................................................. 23
Lower Growth Path To Emerge Over The Long Term................................................................................................................23
Greece's economy will remain along a painfully sluggish growth trajectory over the next decade. An unsustainable debt load, harsh
fiscal austerity conditions and dire demographics will conspire to prevent the country returning to anywhere close to pre-financial crisis
levels in real GDP terms.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................23
Chapter 3: Political Outlook................................................................................................................... 25
SWOT Analysis......................................................................................................................................................... 25
BMI Political Risk Index........................................................................................................................................... 25
Domestic Politics..................................................................................................................................................... 26
Much Needed Debt Haircut Proving Hard To Come By.............................................................................................................26
Greece will fail to achieve a number of the fiscal and structural reforms laid out in the third bailout programme, and the public debt load
will remain unsustainable over the coming years. The ruling Syriza-led coalition will continue losing support as disillusioned voters move
to opposition parties.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................26
Long-Term Political Outlook................................................................................................................................... 28
Another Decade Of Austerity And Instability..............................................................................................................................28
Greece's political landscape is likely to remain tumultuous over 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 becoming even more fragmented. We
therefore expect a prolonged bout of austerity and instability in the decade ahead.
Chapter 4: Operational Risk................................................................................................................... 31
SWOT Analysis......................................................................................................................................................... 31
Operational Risk Index............................................................................................................................................ 31
Operational Risk....................................................................................................................................................... 32
Labour Market Risk.......................................................................................................................................................................32
TABLE: DEVELOPED STATES - LABOUR MARKET RISK...................................................................................................................................32
TABLE: DEVELOPED STATES - LOGISTICS RISK..............................................................................................................................................36
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK..........................................................................................................................39
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK.....................................................................................................................41
Chapter 5: BMI Global Macro Outlook................................................................................................... 43
Global Macro Outlook.............................................................................................................................................. 43
EMs Past The Worst, But Structural Problems Persist.............................................................................................................43
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................43
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................44
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................45
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................47

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