Top target is primary surplus
OECD notes support measures may have slowed down course back to investment grade
Greece’s top priority this year must be its return to primary surpluses as well as maintaining them at 1.5-2% of the country’s gross domestic product, the Organization for Economic Cooperation and Development (OECD) recommended in its special report on Greece, released on Tuesday, in the context of the Athens visit of its Secretary-General Mathias Cormann and his meeting with Prime Minister Kyriakos Mitsotakis.
Although the report acknowledges the contribution of support measures to the recovery of the economy, it notes that due to those measures the return to primary surpluses was delayed, which will slow the achievement of Greece’s investment grade objective. Moreover, Cormann emphasized that the first priority must be the reduction of the public debt, which obviously requires primary surpluses.
The OECD highlighted inflation as an important problem, noting that it is the result not only of expensive imported energy products, but also of the lack of competition in important markets, as well as the many small – and therefore low-productivity – businesses in Greece. Cormann acknowledged that inflation has recently eased, but that the government’s support for electricity prices has also helped. The report, however, forecasts a fall in the harmonized index of consumer prices to 3.7% this year, from 5% predicted by the government, and to 2.3% in 2024.
The report also predicts a significant slowdown in growth to 1.1% this year and 1.8% in 2024, against the government’s forecast for growth of 1.8% this year.
The need to strengthen private investment is also a key suggestion of the OECD, as despite the recent increase in foreign direct investment, its percentage is very low, close to 8% of GDP, compared to rates of 10-20% of GDP in many developed economies. “A lack of funding, a high proportion of micro-enterprises and reduced dynamism are key factors,” the report argued.
It also recommending the return of collective agreements, as it considers that it is not enough to increase the minimum wage alone.
