While officials assert that Greece will easily meet the conditions under which they would receive the next payment from the Second Economic Adjustment support package, the recent growth expectations have become subject to severe criticism, with analysts characterizing the drafted budget as overoptimistic. Non-government analyst expectations average at a 0.6% GDP growth for 2017, while the blueprint which will serve as a foundation for talks with lenders claims that the gauge will climb to 2.7%. The bailout plan requires a 0.6% budget surplus pre-debt-servicing costs, which recent estimates pledge to top with a 1.75% reading.
Forecast GDP Growth vs Actual
© Economic Sense
Despite Greece distancing itself from the severe hit years ago, the global outlook on Greece's economy is still gloomy. The IMF stay intact with their conviction that the Europe's most indebted economy requires a complete relief of its debt burden and expects the unemployment rate, although currently down to 23% from almost 28% in 2014, to stay above ten percent at least until the middle of the century. The organization is not involved in Greece's bailout and stands strong by its decision to remain neutral until actual plans to cut the debt burden are coined.
Forecast Debt to GDP vs Expected
© Economic Sense
Experts describe the Greek economy as one trapped inside of an equilibrium of no growth, no reform and lagging demand. Alexis Tsipras, the Greek Prime Minister, has been tackling the problem with little success but strong determination – setting debt relief by the end of the year as the ultimate target for his political accomplishments. Tspiras showed trust in the benefit of Greece's inclusion in the QE deal, which could be the country's best bet to return in capital markets.
The Evolution of the Greek Deal
While measures on Greece seem harsh at a first glance, some might say – they had it coming. An extensive streak of bad political decisions, unsustainable policies and financial data misrepresentation led Greece in deep water, and it is yet to swim to the shore.
The very beginning of Greece's journey inside the European Union and Euro zone was built on sand, as poor judgement overestimated the economy's level of preparedness to enter an economic area much more efficient and competitive than itself. While the remarkable success over the 1950-1960 period was result of protectionist policies incubating the domestic market, the economy was never successful in foreign markets. Instabilities due to global oil shocks accompanied by an unsustainable domestic policy of high labour costs, taxation and inflation, cast shadow on economic health, which remained undetected until it was too late. Even when a stabilization program was developed, political pressures hindered implementation, resulting in additional pricey expansions, such as the Olympic Games in 2004. A boost in investment and expansion led internal debt to turn external.
There was, however, a lot more to it, when it came to the evolution of government debt troubles. Greece lost to expectations of post-crisis GDP, seeing revenues fall by 15% in the aftermath of the 2008 recession. Fiscal imbalances, stemming from a 40% output increase against 87% government expenditure surge and a 31% change in tax revenue, led to government deficit. Lax policies ahead of elections denied necessary austerity measures for successful recovery of the debt burden and budget deficit. Political mistakes led Greece to become "one of the bad guys" during the global financial crisis, causing spreads to rise and cutting lending unexpectedly. Rating agencies soon downgraded Greek bonds to junk.
What caused even more controversy was the data manipulation, which led to the concealment of Greek economic problems. Such banks as Goldman Sachs helped the Greek government manipulate the government borrowing data by using currency swaps which were not included in Eurostat forecasts. The poor quality of the data was discovered in 2010, after economic indicators consistently coming in below expectations.
Tax evasion, government spending and current account deficits all contributed to where Greece is now.
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