IOBE warns of GDP stagnation in 2014

Report sees unemployment declining although European and local elections carry a major political risk

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1.3571 In contrast to expectations of a 0.6 percent recovery after six years of recession, the Greek economy may in fact not grow this year and could even post a small contraction, the Foundation for Economic and Industrial Research (IOBE) claims in its latest quarterly report that was made public yesterday.

IOBE says the 2013 economic contraction amounted to 4 percent, while for 2014, “it is estimated that the country’s gross domestic product will stabilize, although a fresh contraction, albeit a small one, cannot be ruled out.”

On a positive note, the report foresees a decline in the unemployment rate, which has been on an upward trajectory for years, saying it will decrease this year to 26 percent from 27.3 percent in 2013. Deflation is seen persisting at a rate of 0.3 percent, compared with 0.9 percent in 2013.

European and local elections in May may put political stability at risk, as well as lead to a relaxation in fiscal policy.

The main criticism that IOBE makes in its report concerns what it calls “reform fatigue” in the country, discerning weakness and delays in the completion of the necessary reform initiatives.

The foundation spells out three main factors of concern. The first is the European and local elections in May, which may put political stability at risk and lead to a relaxation in fiscal policy, reluctance to promote structural reforms and increasing difficulty in cooperation with the country’s European Union peers for the promotion of future solutions. The second factor concerns the failure to develop a climate of trust and reliability for the country. Meanwhile, the third factor is passing bills without having created the conditions that would allow for their implementation and avert their being overturned in the near future.

For the Greek economy to gradually emerge from the recession, the report states, the country has to follow a new growth model. That would require: an increase in the contribution of exports and investments to the national product; a swing toward producing goods and services of quality and in activities that have a high added value on a global level; an increase in the economy’s competitiveness through fresh invest- ment; targeted interventions in specific economic sectors; and necessary structural interventions.

The report also said that more new businesses in Greece are involved in innovative activities associated with services to other enterprises (business-to-business, or B2B). This is attributed to the penetration of new technologies and a decline in consumer demand due to the crisis, which has led to a decline in the number of new enterprises offering services to the final consumer. New companies offering B2B services grew from 20 percent of all start-ups in 2011 to 25 percent in 2012, the survey showed.

At the same time, entrepreneurship, with all its financing difficulties, is seen by the foundation as a good career move, which may be linked to hope for an improvement in economic conditions but may also be due to the considerable reduction in employment options – in other words, the entrepreneurship of necessity.