The year 2018 was a turning point for the Greek economy, as the third adjustment programme accompanied by concrete measures to reduce the country's financing needs over the next decade was successfully completed, according to Alpha Bank's analysis of key challenges for the Greek economy.
The rate of economic recovery has increased compared to 2017, despite the fact that the primary surplus has exceeded targets for another year. Concerning the economic climate, both consumer confidence and business confidence indices have improved significantly in line with the stronger growth rate of economic activity.
The bank analysts pointed out that Greek government bond yields are still relatively high, making foreign borrowing difficult, while international financial uncertainty and the loosening of fiscal policy in Italy adds to the difficulties. The 2018 growth model, as shown by the analysis of gross domestic product components, relies on private consumption and tourism receipts, while investment expenditure remains subdued.
The challenges for the Greek economy in 2019 are many
The most important according to the economic analysis are the following:
Firstly, the international economic environment has become less favorable and more volatile. In particular, global demand may be reduced as there are signs of a slowdown of growth in China, the United Kingdom, the eurozone and the US.
The possibility of the United Kingdom leaving the European Union without a specific framework agreement could adversely affect trade flows, weaken the British tourists' disposable income due to weaker sterling and reduce the available EU resources for Greece.
Secondly, the long-term maintenance of investment spending in years of economic recession below the level of depreciation has weakened the country's productive capital stock both in terms of value and in terms of not incorporating new technological innovations that have recently taken place. As a result, labour productivity has either declined or remained subdued.
Thirdly, covering the above-mentioned investment gap will probably require the assistance of fiscal policy. It is necessary to formulate a more development-friendly policy mix within the narrow framework set by the target of achieving a high budget primary surplus. This stresses the need for the full implementation of the public investment programme and the reduction of tax rates on the capital and labour markets.
Fourthly, reducing the entrepreneurial and innovation deficit requires strengthening confidence in the institutional framework and creating a stable business environment.
The fifth challenge is the upgrading of public administration, particularly in the areas of the setting up of control mechanisms, human resources management and tax administration.
Finally, privatisations scheduled in 2019 must be speeded up and the programme to deal with non-performing loans and to reduce dependency on the BoG emergency liquidity mechanism must be successfully implemented.