Greece

Promising prospects but risks remain

B3

SENSITIVE RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD200.288bn (World ranking 51, World Bank 2017)
Population 10.76mn (World ranking 85, World Bank 2017)
Form of state Parliamentory Republic
Head of government Alexis Tsipras (Prime Minister)
Next elections 2019, Legislative
  • Major economic hub of Southeast Europe
  • Strong tourism sector
  • Labour market reforms boost competitiveness
  • Fiscal surplus
  • Sizeable cash buffer to cover public financing needs beyond 2020
  • Capital controls in place since July 2015
  • Rigid business environment
  • Fragile banking sector
  • High corporate tax rates
  • Low R&D expenditure
  • High public debt burden

Greek GDP growth to exceed Eurozone average in 2019/2020

In the short-term, growth prospects for the Greek economy are quite favorable, thanks to the large output gap and significant slack in the economy, particularly in the labor market. After a GDP expansion of 1.9% in 2018 - the highest growth rate in over a decade - the Greek economy is expected to come in at 2% this year before accelerating to 2.3% next year. Domestic demand will remain the key driver of GDP growth, thanks to the recovery in economic confidence, as well as the favorable labor market trend. Meanwhile, Greek exports will continue to make a positive growth contribution, driven by resilient demand in the tourism sector, as well as improvements in Greece’s external competitiveness. However, beyond the short term, Greece’s economic recovery remains subject to uncertainty, despite the promising headline growth figure. In particular, the continued weakness in investment remains a key concern. Up until now, GDP growth has been driven largely by private consumption and some tailwind from the external sector. To ensure that Greece’s economic recovery is robust and sustainable, investment – both domestic and foreign – will have to pick up notably. In this context, ensuring policy consistency and creating a favorable business environment that fosters dynamic and sustainable economic growth will be key to maintain and strengthen investor confidence. Encouragingly, since exiting its third bailout program in the summer of 2018, the post-program surveillance has proven relatively smooth, albeit with room for improvement. However, on the downside, business activity and in turn investment are still held back by a number of factors, most notably high taxation and excessive red tape. The trend in this context has been negative more recently, as measured by the World Bank’s annual Ease of Doing Business report. In the 2018 survey, Greece slipped five spots in the ranking to place 72, falling behind countries such as Rwanda and Kyrgyzstan. Finally, a lasting economic recovery requires strong and healthy banks that are able to adequately finance GDP growth. While here the trend certainly goes in the right direction - banks’ capital positions have strengthened and deposits have started to return – progress in improving  asset quality and reducing non-performing exposures remains too slow. 

Labor market: Positive trend accelerates

Greece’s labor market outlook continues to gradually improve. However, the road ahead is still long. The unemployment rate has fallen to 18% in late 2018 – the lowest level observed in Greece since mid-2011 but still the highest in the Eurozone – and prospects remain positive given the expected pick-up in GDP growth. Meanwhile, employment continues to rise. The quality of jobs has clearly deteriorated though. When accounting for underemployment, the estimated rate of unemployment remains stuck above 25%. The economic recovery will support the healing of the labor market but there is a risk of structural unemployment remaining high. Despite widespread joblessness, employers are reporting problems in finding the right staff to fill job openings. This problem is to a large degree testament to the mismatch between education outcomes and labor market needs in Greece. An overhaul of the education system, including the outdated university curriculum, is required but this would only bring solutions in the medium to long-term. In the meantime, active labor market policies should focus on retraining and upskilling unemployed workers to tackle the mismatch.

Fiscal outlook: Government debt to embark on clear downward trend

In 2018, Greece achieved a primary surplus of around 4% of GDP, exceeding the target of 3.5%. The result was driven by rising tax revenue, as well as a reduction in public spending – notably investment. Greece looks set to reach the budget targets for 2019-20 without the need for additional austerity. Thanks to the promising fiscal outlook and nominal growth in the area of 2% over the forecast horizon, public debt in relation to GDP will decline from close to 180% in 2018 to 170% in 2020. 

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Italy 11%
1
12% Germany
Germany 7%
2
9% Italy
Cyprus 6%
3
7% Russia
Turkey 6%
4
6% China
Bulgaria 5%
5
5% Netherlands

Trade structure by product

(% of total)

Exports Rank Imports
Refined Petroleum Products 27%
1
14% Crude Oil
Non Ferrous Metals 7%
2
7% Pharmaceuticals
Other Edible Agricultural Prod 5%
3
6% Refined Petroleum Products
Fats 5%
4
5% Ships
Preserved Fruits 5%
5
4% Plastic Articles

Late payments in Greece are frequent and, despite regular improvements, the average DSO remains high compared to other EU markets – 100 days on average. This is not entirely surprising as the law has implemented EU rules on late payment with flexibility.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

Although the courts are fairly reliable, the legal process remains slow, despite recent procedural amendments to comply with EU requirements in order to streamline of the process. Enforcement may also be difficult as debtors are often well aware of loopholes in the system.

Insolvency law provides a debt renegotiation mechanism, although collecting money at this stage remains a significant challenge.

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Collection complexity Greece

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