IOBE warns of GDP stag­na­tion in 2014

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

Kathimerini English - - Front Page - BY SOTIRIS NIKAS & DIM­I­TRA MANIFAVA

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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.

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