Country Report Greece February 2009

Outlook for 2009-10

• The Economist Intelligence Unit's central forecast is that an early election will be held before the end of the parliamentary term in 2011, potentially in March 2010, when a new president must be elected.
• The cabinet reshuffle suggests that New Democracy (ND) has abandoned its efforts to maintain fiscal discipline in a bid to boost its popularity. We expect ND's popularity to slide again.
• If there were to be an early election, the opposition Panhellenic Socialist Movement (Pasok) would be unlikely to secure an absolute majority, implying that an agreement with at least one other party would be needed.
• The banking sector has so far not been as severely affected by the financial crisis as in many other countries, but is still being given state support and further measures could be needed as it is heavily exposed to the Balkans.
• We expect that the general government deficit in 2009-10 will significantly exceed the ceiling of 3% of GDP established by the EU's Stability and Growth Pact (SGP) and Greece is likely to face the excessive-deficit procedure (EDP).
• Rising debt-servicing costs, a sharp slowdown in credit growth, high inflation and falling business confidence will cause domestic demand to slow.
• The current-account deficit will narrow as consumer, investment and import growth slow and there is a strong surplus in net transfers and services.

Monthly review

• Pasok has indicated that it intends to force an early general election in March 2010, when a new president is elected, if one has not been held before then.
• On February 2nd the minister of the interior challenged Pasok to endorse a new electoral law passed by ND, which will give the front-running party 50 extra seats in parliament in an election.
• Although the student riots at the end of 2008 have quieted, farmers, civil servants and state hospital doctors have all staged short strikes in early 2009.
• The government's Stability and Growth Programme update revealed that the 2008 government budget deficit exceeded the SGP threshold of 3% of GDP and will continue to do so through 2010.
• The European Commission recommended that Greece be placed under the EDP. The Council of economy and finance ministers (Ecofin) will consider the recommendation at its meeting on March 10th.
• According to flash estimates from the National Statistical Service of Greece, year-on-year GDP growth slowed from 2.9% in the third quarter of 2008 to 2.6% in the fourth. Quarter-on-quarter growth slowed from 0.5% to 0.3%.

This report covers the following industry codes:
SIC Code: 48;49;60
NAICS Code: 517;22;52