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Coronavirus Reverses Initial Favorable Forecasts for Greece

Ermou street, Athens. Photo Source:

According to Greece’s Stability Program for the 2020-2023 period submitted this week to the European Council and to the Commission, in the worst case scenario Greece could face a recession of 7.9 percent (13.2 percent before the measures) in 2020, with the tourism, transport and shipping sectors to be hit the hardest.

The stability program forecasts public debt rising to 337 billion euros or 188.8 percent of GDP at the end of 2020 from 331 billion euros or 176.6 percent in 2019, and set to return to 2019 levels next year.

According to forecasts, the economy is expected to return to positive growth rates of 5.1 percent in 2021.

In a baseline forecast, taking into account policy response measures, final domestic demand is set to provide a negative contribution of 3 pps to change in GDP.

With regard to domestic demand, real private consumption is estimated to experience the largest contraction, with a negative contribution of 2.7 pps to GDP and a negative growth rate of 4.1 percent, reflecting consumer confidence drop, income losses from business closures or companies running at reduced production levels.

Pre-coronavirus estimates placed growth in Greece at 2-3 percent after a near decade-long economic crisis and stringent austerity measures. Now analysts expect the economy to contract up to 10 percent.

The report goes on to note that the tourism industry is expected to face the biggest losses particularly stronger in the second quarter of the year. Investments in tourism and related trade are set to freeze impacting employment.

Consumer spending has focused on food, pharmaceutical / medical supplies and online shopping with public consumption set to remain positive and increase by 1.0 percent due to this.

Exports are expected to drop by 19.2 percent, imports by 14.2 percent, and investments by 4.6 percent.

Lastly, according to the report, a potentially lasting reduction in salaries and the consequent decline in private consumption combined with tighter fiscal measures may hinder the return to pre-crisis levels and prove to be “extremely unfavorable” risks for the country’s recovery.

“Under these circumstances, the decisions taken at a European level for securing the necessary additional resources to deal with recessionary impact of the crisis will be of great importance,” the report concludes.

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