Recovery in Greek economy likely in 2016; 2.7% GDP growth in 2017

By Money Times

Nov 10, 2015 07:28 PM EST

The ongoing recession in Greek economy after long-lasting uncertainty is projected to end in 2016 and may witness real growth in 2017, according to European Commission (EC).

The unsuccessful conclusion of second adjustment program of bailout package continued and worsened the economic recession in the ailing Greece economy further weakened the recovery prospects in the first half of 2015.

The closure of banks, imposition of capital controls, etc, climaxed uncertainty in Greece economy. The newly-elected government led by Alexis Tsipras has received clearance from creditors on recapitalizing banks and other measures to boost the ailing economy and these measures are serving as the base for recovery forecasts.

The GDP growth in 2017 may gather momentum and is forecast to be at 2.7 percent, if the proposed structural reforms are implemented to boost the domestic demand.

European Commission (EC) in its latest autumn report on Greece under title of 'Uncertainty reverses economic recovery,' observed that the Greek economy witnessed some positive development during 2014, but the nation failed to get the second adjustment program as part of the bailout package.

The Greece's gross domestic product (GDP) witnessed a real growth rate of one percent during the first half of 2015. Despite the prevailing uncertainty, the crisis-hit country managed to perform positive growth. 

The economy is witnessing mixed development as consumers are advancing spending while depositors are suffering losses. 

The International Monetary Fund (IMF) in its World Economic Outlook report for October 2015 made a forecast about a possible drop in Greek GDP by 2.3 percent by the end of 2015.

The country may witness recession level of 1.4 percent in 2016 and it'll recovery by the end of 2017. IMF predicts the Greece GDP is expected to grow at 2.7 percent after 2017. 

However, the recovery in Eurozone is expected to continue in 2015 and 2016 as well, but with an exception to the Greek economy.

The severe uncertainty conditions in the first half 2015 make it difficult to predict further. The contagion risk from Greece and the other euro nations to advanced economies is lower than what it used to be in early 2015, said the IMF report.

The rebound of business confidence, recapitalization of banks and stabilization of the financial sector are supporting the economic recovery in 2016 though the Greece GDP could suffer 1.4 percent drop in growth rate for 2015, states the IMF report. 

The fresh infusion of funds helps relaunch the projects and privatize some projects as well.

However, there's a possibility of carrying forward the negative aspects of 2015 into 2016 and this will also impact negatively to some extent. GDP growth will gain momentum and may touch 2.7 percent growth rate in 2017, forecasts IMF.

The Purchasing Managers' Index (PMI) during July and August dropped to its historically low levels and Economic Sentiment Indicator (ES) is reflecting weak confidence, according to the EC report.

The drop in imports has further widened the trade deficit. Adding to this, the business segment is suffering from lack of financing as trade credit has been tightened. The fiscal drag is impacting on the disposable income of public during the second half of 2015.

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