Stournaras: Prospects for Greek Economy Positive, But Risks Remain

Bank of Greece governor Yannis Stournaras on Monday said that the Greek economy could see growth of 2.7 percent in 2017 under the condition that the second evaluation of the Greek programme was soon concluded by international creditors.

Speaking at the 15th Tourism & Development Conference of the Greek Tourism Confederation (SETE) in Athens, Stournaras said that debt relief was essential for Greece and warned that if the public debt is not considered “sustainable”, then the country could not re-enter markets in 2018.

Stournaras noted that the gradual improvement in the Greek economy was beginning to show through macroeconomic indicators such as industrial production, retail sales (up by 9.7 percent in July), the creation of 237,817 new jobs in the first eight months of the year and the drop in the unemployment rate to 23.1 percent, against 24.9 percent in the previous quarter and 24.6 percent in the corresponding quarter of 2015.

According to Stournaras, the Bank of Greece forecasts that the recovery in the country’s economic activity that began from the second half of 2016 will continue in 2017 and 2018. Specifically, in 2016 a 0.3 percent reduction of GDP is expected and growth of 2.5 percent and 3 percent for 2017 and 2018 respectively. But he underlined that the predictions will be correct only if the reforms and privatisations agreed between the Greek government and the institutions were carried out.

‘Tourism sector needs upgrade’

In regards to tourism, the governor of BoG said the upward trend of arrivals to the country was maintained this year. “However, to some extent this was achieved by the offer of highly competitive prices that ultimately had a negative affect on the total of tourism receipts, which will possibly show a decline for the full year”, he said.

“A positive element, however, is that the downward trend of the average length of stay in our country has stopped and the first half of 2016 saw a slight increase”, Stournaras added.

The central banker stressed that the sector needs to upgrade and specialize the tourism product by making improvements to infrastructure (regional airports, marinas, cruise infrastructure). He also suggested for the reduction of air fares in order to boost tourism demand.

“Overall, the upgrade of infrastructure is a prerequisite for the improvement of the tourism product. Therefore, there is much to be done. Particularly, I want to refer to the exploitation of public assets and the settlement of unresolved issues regarding spatial planning. This will allow to attract new investments, which will upgrade the tourism product”, he said.

Stournaras said that during the crisis, tourism enterprises — like all the Greek economy sectors — were forced to operate in an increased tax environment, which affects competitiveness.

“The Bank of Greece has repeatedly addressed the issue and pointed out that the budgetary adjustment should put more emphasis on reducing public spending rather than increasing tax rates. Equally important, however, is to adapt through a more efficient use of public property through privatization”, he said and added that if tax rates are reduced then a more investment-friendly environment will be created.

The central banker also mentioned said that there was a 54.3 percent increase in non-performing loans in the tourism sector in the first half of 2016. “This percentage is much higher than the level of the total economy (45.1 percent)”, he said, adding that the situation should be investigated and addressed.