The Greek economy is currently at a turning point. Sentiment and expectations have shifted from negative to positive (perhaps too positive), but there will be some delay before this improvement is reflected by the macroeconomic data. According to our baseline scenario, the substantial contraction in the 4th quarter of 2012, will (because of the negative carry-over effect) spill over into the first half of 2013. Furthermore, economic activity in H1-2013 will be affected by the implementation of the new fiscal consolidation measures.
In order to counterbalance the adverse effects of the new fiscal measures the Greek government should:
- Continue the strong implementation of the Economic Adjustment Programme so that the Greek economy continues to receive funding from the Troika and positive sentiment is further reinforced.
- Accelerate the privatisation process and improve the absorption of EU funds. This will provide the necessary capital to kick-start a positive investment cycle in the economy.
- Clear its arrears with the public sector’s suppliers, which will improve liquidity conditions in the economy and give a “business as usual” feeling to the corporate and household sector.