Waiting for the Policy Response
By the end of 2011, we had already expressed the view that the consensus forecast for an easing of recessionary pressures to -3% in 2012 was too optimistic for a number of reasons. From a purely technical perspective, the prospects of the Greek economy were negative because of the negative momentum that it was carrying into in 2012 and the negative effects of the fall in economic activity in the rest of the Eurozone. In addition to these technical considerations, our pessimism was based on the fact that, in our assessment, the Greek authorities have very limited scope to exercise fiscal and "monetary - credit" policy in order to manage the recession and to create the necessary conditions for recovery. As a result, fiscal adjustment and internal devaluation are taking place in an environment of very tight monetary conditions. Τaking into consideration the need for further fiscal adjustment, it is clear that the stabilization of the Greek economy should be based on the remaining components of economic activity. First, internal consumption should be stabilized at current – already depressed - levels. Emphasis should be given to investment. By this, we mean not only the Public Investment Program – which currently is being used as a tool of fiscal policy and not as a means of achieving growth – but private investment, too. Finally, the external sector is of particular importance as it is linked to the external balance. Despite the fact that exports have improved significantly they are still below their 2008 levels. Taking into account the downward revision of Q4/11 data, the provisional GDP and the impact of new fiscal measures for 2012, we revise our GDP estimates for 2012 downward to -6.5%.