Greece Business Forecast Report Q3 2009

The government's budgetary problems are even worse than we had previously feared, after the general government deficit soared to 5% of GDP in 2008. Ambitious plans to bring the shortfall back into accordance with eurozone regulations have failed to deliver in the early part of this year, and more measures are due to be presented to an increasingly impatient European Commission.

However, with the economy clearly sliding into a painful recession, correcting the fiscal imbalance will be extremely difficult. Indeed, higher taxes and spending cuts are especially unwelcome in an economic downturn, and the government faces a choice between satisfying the EU or appeasing the electorate. We forecast a budget deficit of 6.7% of GDP in 2009 and 6.4% in 2010, still way above the Maastricht ceiling (3%). On top of a bloated public sector and weak tax collection, a large debt pile is a major drag on public finances, especially as borrowing costs have risen sharply during the credit crunch.

The conservative government's precarious position was made clear in the recent European Parliament elections, which were won by the left-leaning opposition PASOK party. The ruling New Democracy party has been rocked by a series of corruption scandals and growing criticism of its handling of the economy in a global downturn. Though its current term is due to run until late 2011, we expect a general election before then, most likely next year. On current polls, this would return PASOK to power, though the potential for another weak majority and the likely adoption of irresponsible, populist policies will ensure that this would not be any guarantee of a return to stability.

The Greek economy contracted on a quarterly basis in Q109, marking the start of what we believe will be a deep recession. Domestic demand tumbled at the start of the year, supported only by growth in government spending - clearly not a sustainable solution given the current budgetary constraints. Exports also plummeted, and we expect a slump in tourism to be particularly painful for local businesses during the summer months. We retain our below-consensus target for real GDP growth of -3.5% in 2009, rebounding to 1.0% growth in the following year. Going forward, the need for fiscal tightening and rising interest rates at the European Central Bank (ECB) will impede the economic recovery, and we do not expect a return to pre-recession growth rates in the five-year forecast period.

Greece's business environment remains relatively uncompetitive by regional standards. Labour costs are high, and have risen faster than productivity gains in recent years. A large public sector is also weighed down by bureaucracy and red tape, while labour strikes this year have underlined the risks of conducting business in the country. These powerful unions also threaten the government's privatisation programme and efforts to restructure floundering state monopolies in the transport sector. We do not expect major gains in the country's business environment rating of 55.9 in the near future.

• Executive Summary
• Political Instability and Fiscal Deficit Major Concerns
• Chapter 1: Political Outlook
  • SWOT Analysis
  • Bmi Political Risk Ratings
  • Domestic Politics
  • Early Elections Increasingly Likely
  • Political Risk Remains Relatively High in Greece, as The Narrow Government Majority Comes under Strain from Corruption Scandals and Mounting Economic Troubles.
  • Foreign Policy
  • Little Hope for Breakthrough in Name Dispute
  • Renewed Talks on The Long Running 'Name Dispute' between Greece and Macedonia Are Unlikely to Yield Any Tangible Results in The near Future, in Our View.
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • Bmi Economic Risk Ratings
  • Economic Activity
  • A Painful Recession Begins
  • Our Expectations That Greece Would Be Caught up in The Global Credit Crisis This Year Appear to Be Correct, as Quarterly Gdp Growth Turned Negative in Q109.
  • Fiscal Policy
  • Deficit Reduction Programme Wholly Unrealistic
  • Greece's Gaping Budget Deficit Will Continue to Put The Government in Something of A Straightjacket When IT Comes to Fiscal Policy.
  • Balance of Payments
  • External Deficit to Narrow as Imports Slump
  • Greece's Current Account Deficit Shrank Sharply in Q109 on The Back of A Far Smaller Trade Gap.
  • Monetary Policy
  • Flirting with Deflation
  • Inflation Has Fallen Close to Zero in Greece, and May Dip into Negative Territory in The Coming Months.
• Chapter 3: 10-Year Forecast
  • The Greek Economy to 2018
  • Lower Growth Path to Emerge over Long Term
  • with International Credit Conditions Unlikely to Return to Pre-2008 Levels over The Foreseeable Future, We Expect Both Consumer and Investment Spending to Be More Subdued over The Longer Term, Anchoring The Greek Economy onto A Lower Growth Path than That Seen Leading up to The Global Credit Crisis.
• Chapter 4: Special Report
  • The Outlook for Global Banking
  • Business Environment Rating Outlook
• Chapter 5: Business Environment
  • SWOT Analysis
  • Bmi Business Environment Risk Ratings
  • Business Environment Outlook
  • Institutions
  • Infrastructure
  • Operational Risk
• Chapter 6: Key Sectors
  • Oil & Gas
  • Executive Summary
  • While There Is Still Some Scope for Medium- to Long-Term Growth in Domestic Oil Production (to A Possible 5,000b/D by 2011/2012), There Is Now Much Greater Uncertainty over The Scale and The Timing of New Field Development.
  • Automotives
  • Executive Summary
  • The Latest Estimates from The Amvir Suggest That The Effect of The Credit Crisis Deepened in The Final Two Months of
  • 2008, When Passenger Car Sales on The Whole Fell by Almost 4.5% Y-O-Y to 267,242 Units by The End - Firmly Downplaying
  • Bmi's Forecast That 274,704 Units Would Be Being Sold during The Year.
• Chapter 7: BMI Global Assumptions
  • Global Assumptions
• List of Tables
  • Table : Greece Political over Vie W
  • Table : Economic Activity
  • Table : Fiscal Policy
  • Table : Balance of Payments (Eur O)
  • Table : Monetary Policy
  • Table : Greece Long -Term Macr Oec Onomic Forecasts
  • Table: Loan-to-Deposit Ratios, Selected States
  • Table: Loan Grow Th (% Chg Y-O-Y), Selected States
  • Table: Commercial Banking Business Environment Ratings, Selected States
  • Table: Bmi Business and Operational Risk Ratings
  • Table: Bmi Legal Framewo Rk Ratings
  • Table : Eur Ope , Fdi Annual Infl Ows
  • Table: Bmi Trade Ratings
  • Table : Top Export Destinati Ons
  • Table : Greece Oil & Gas - Hist Orical Data & Forecasts
  • Table : Greece , Passenger Car Sales - Hist Orical Data and Forecasts
  • Table: Global Assumptions
  • Table: Global & Regional Real Gdp Grow Th
  • Table: Commodities