Greece’s efforts to reduce its debt load and the commitment of European Union leaders to support the country may help its economy recover faster than expected, the Bank of Greece said.
“These are positive developments, which create plausible expectations of a recovery of the Greek economy,” the Athens- based central bank said in its monetary-policy report published today. If Greece implemented all measures it committed to consistently and speedily, its economy could recover even faster, it said.
Greece, in a fifth year of recession, announced a 10 billion-euro ($13 billion) offer today to buy back bonds issued earlier this year, a crucial step for the release of bailout funds that have been frozen since June. The offer was part of a package of measures approved by euro-area finance ministers last week to cut the nation’s debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014.
Uncertainties and risks still exist and any delays in implementing reforms “will push the recovery back, with consequences that will be far more severe than anything that has so far happened,” the central bank said.
The economy will shrink as much as 4.5 percent next year before returning to growth in 2014, with unemployment seen at over 26 percent in the two-year period, the Bank of Greece (TELL) predicted. The Organization for Economic Cooperation and Development forecasts contractions of 4.5 percent in 2013 and 1.3 percent in 2014.
While boosting exports and speeding up state-asset sales are important parts of building a sustainable growth model and creating jobs in Greece, uncertainty relating to downside risks for the global economy could “weigh heavily” on the country’s economic outlook, the central bank said.
Continued financing under two bailouts from the EU and International Monetary Fund, with total pledges of 240 billion euros, is a crucial element determining whether Greece can overcome its crisis, the Bank of Greece said.
The funds have been blocked since June after two elections and a deepening recession threw the reform program of Prime Minister Antonis Samaras’s government off track.
“The strong reassurances of our partners that Greece will remain in the euro area are a major step forward,” the bank said in its report. “Regaining confidence fully will require a sustained and stronger effort to make up for lost ground and convince that the recession has a visible end.”