IMF slashes GDP forecast to 2.2 percent

The International Monetary Fund has lowered its projections on Greek growth from last fall and warned against “unreasonable forecasts” and “unjustifiable frameworks” by the country’s European creditors.

In its World Economic Outlook, published on Tuesday, the Fund argued that growth in Greece this year will come to 2.2 percent against a forecast of 2.8 percent last October, but this will not put the sustainability of the country’s debt at risk. It actually estimated a major gross domestic product increase of 4.2 percent for the last quarter of 2017.

Notably, the budget estimate for this year’s growth is 2.7 percent, and after the downward revision of the 2016 GDP data and delays to the second bailout reform there have been much greater adjustments to Greek growth forecasts for this year by banks and rating agencies.

For 2018, the IMF estimated that growth will amount to 2.7 percent, though in the October-December 2018 period growth will be at just 2 percent. In 2022 it will drop to an anemic 1 percent, the IMF expects.

In an interview with the Leading European Newspapers Alliance, IMF Managing Director Christine Lagarde said that in the long run it makes sense for the Greek primary budget surplus to amount to 1.5 percent of GDP, contrary to the German view in favor of a 3.5 percent primary surplus. Lagarde argued that this rate is “sensible given all that the economy has gone through and given the Greeks’ capacity to reform.”

She did add that “if the Europeans determine differently, then we need to take that into account. But we cannot adopt unreasonable forecasts or build unjustifiable macroeconomic frameworks.”

Lagarde reiterated that the two requirements for the participation of the IMF in the Greek program are the implementation of reforms by the Greeks and the restructuring of the debt. “We need solid reforms, and we are getting there: the team is going to be back in Greece to negotiate, fine-tune, put things on paper, so as to be a binding agreement between all the parties,” she said as a team of creditors’ experts is expected in Athens next week to wrap up talks on cuts worth 2 percent of GDP from 2019 onward.