The Greek economy will continue recovering in the coming years if the country adhered to its reform commitments, the European Commission said in its Interim Summer Economic Forecast released here on Thursday.
The Commission's forecasts for Greek economic growth remained unchanged from its previous forecast in May, at 1.9 pct in 2018 and 2.3 pct in 2019. In its report, the EU's executive branch noted that the Greek economy got off to a strong start in the first quarter in 2018. Following the successful conclusion of the ESM programme, economic recovery is expected to continue in the coming years, as long as commitments to reforms are upheld.
According to provisional data, real GDP growth reached 0.8 pct (in a quarterly basis) in the first quarter of 2018 (in seasonally and working-day adjusted terms), which corresponds to a growth rate of 2.3 pct (on an annual basis). This confirms that the slowdown to 0.2 pct (quarterly) in the fourth quarter of 2017 was temporary and that Greece is indeed recovering. In the first quarter of 2018, growth was led by net exports which contributed 1.4 percentage points. (quarterly) to GDP growth. This was a result of both rising exports and decreasing imports. Private consumption registered an increase for the first time since 2016, but its growth contribution was cancelled out by a decrease in public consumption, hence total consumption remained almost flat (0.1 pct). There was a large decline in investment, which shaved off 2.4 percentage points. from GDP growth. However, the decline was expected following the strong one-off growth in the preceding quarter.
Real GDP is forecast to reach 1.9 pct in 2018 and to accelerate further to 2.3 pct in 2019. The main driver of growth is expected to be investment, which is rising on the back of the improving business environment and increased foreign direct investment. Private consumption is expected to remain subdued, while the contribution of net exports is set to be more moderate over the remainder of the year, as increased investment activity should generate additional demand for goods imports.
The labour market continues to improve. Unemployment fell to 20.1 pct in March 2018, down 0.7 percentage points. Since the end of 2017, while employment grew by almost 2 pct in the first three months of 2018. This trend is expected to continue throughout the year. Consumer price inflation reached 0.8 pct in May, with an average of 0.4 pct for the first five months of the year, driven mainly by higher processed food and energy prices. Due to higher oil price assumptions, the forecast for headline inflation is revised slightly upwards.