Greece Business Forecast Report

Economic Crisis To Direct New Government's Policy

The new PASO K government issued a shock revision to fiscal data, arguing that its predecessor had been manipulating the figures to hide the extent of Greece's fiscal problems. The 2009 budget shortfall is now estimated to be 12.7% of GDP (we forecast 12.5%). The government's proposed 2010 budget projects a deficit of 9.1% of GDP, a substantial improvement but still three times the eurozone limit. We believe PASO K's plans to overhaul the tax system in 2010 are encouraging, but will not be enough to bring the budget deficit back into line with regional standards without sharp spending cuts. We remain sceptical of the government's pledge to bring the shortfall back under 3% of GDP in four years, particularly as the next general election will be held at that time, making it even harder to push through unpopular reforms.

Socialist party PASO K achieved a comfortable election victory on October 4, though the new administration will not be able to enjoy a honeymoon period. Sorting out the budget crisis will be the first priority for Prime Minister George Papandreou, though this will involve implementing severe spending cuts that could prove costly in terms of popularity. Stamping out corruption in the public sector is another key challenge for Papandreou, and one that is essential to maintain popular support and investor confidence. The extremely difficult situation means that we do not expect a large improvement in political stability in the near future, and so leave our short-term political risk rating at a disappointing 63.5 for now.

Revised data show the economic recession technically began in Q109, following two consecutive quarters of negative growth, and continued to deepen in Q309. We expect full-year growth to measure -1.4% in 2009, and 0% in 2010, as domestic fiscal tightening hampers the economic recovery. The performance of the export sector (particularly tourism and shipping) will be key to countering weak domestic demand in the near future, though we expect average annual growth of 1.5% in the coming five years, far below pre-crisis levels.

Greece's business environment remains relative uncompetitive in regional terms. In the World Economic Forum's 2010 Competitiveness report, Greece was ranked a disappointing 72nd, above only Bulgaria in the EU . Suffocating red tape, widespread corruption and inflexible labour market regulations are among the key obstacles to conducting business in Greece. The new PASO K government has vowed to increase efficiency and productivity, as well as pledging an overhaul of the tax regime to clamp down on widespread evasion. Making local businesses more competitive is vital for encouraging export expansion and anchoring the economy on to a healthy and sustainable growth path over the long term.

• Executive Summary
  • Economic Crisis To Direct New Government's Policy
• Chapter 1: Political Outlook
  • Swot Analysis
  • Bmi Political Risk Ratings
  • Domestic Politics
  • No Honeymoon Period For New Government
  • The Economic Crisis, Which Has Hit Greece Hard In 2009, Will Make Life Difficult For The New Pasok Government, Which
  • Comfortably Won Legislative Elections On October 4.
  • Table: Political Overview
  • Foreign Policy
  • Solutions To Regional Disputes Over M-T Unlikely
  • We Expect The Pasok Government To Take A Softer Stance On The Key Foreign Policy Issues Affecting Greece, Specifically The
  • Ongoing Name Dispute With Fyrom And Relations With Turkey.
• Chapter 2: Economic Outlook
  • Swot Analysis
  • Bmi Economic Risk Ratings
  • Economic Introduction
  • Data Credibility Concerns Are Costly
  • Dramatic Revisions To Official Economic Statistics Have Once Again Raised Questions Over The Credibility Of Greek Data.
  • Economic Activity
  • Budget Problems Will Prolong Recession
  • New Data Show That Greece's Economic Recession Began Earlier And Ran Deeper Than Previously Reported.
  • Table: Economic Activity
  • Monetary Policy
  • No Change To Inflation Outlook
  • We Continue To Forecast Relatively Benign Inflation Over The Coming Two Years At Least, As The Government's Fiscal
  • Tightening And Ecb's Monetary Tightening Draw Out The Country's Recession And Recovery Process.
  • Table: Monetary Policy
  • Fiscal Policy
  • No Easy Way Out Of Fiscal Nightmare
  • New Data Show The Extent Of The Pasok Government's Fiscal Challenge, As The Budget Deficit Is Set To Hit An Astonishing
  • 12.7% Of Gdp In 2009.
  • Table: Fiscal Policy
  • Banking Sector
  • Further Government Bond Purchases Likely
  • Despite The Controversy Surrounding Recent Fiscal Data Revisions And A Growing Public Debt Pile, We Highlight Greece's
  • Banking Sector As A Source Of Stability For The Economy.
• Chapter 3: 10-Year Forecast
  • The Greek Economy To 2019
  • 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.
  • Table: Lon G-Term Macroeconomi C Forecasts
• Chapter 4: Special Report
  • The World's Fiscal Conundrum
  • Bleeding Red Ink Across The Globe
  • Table: World Government Expenditure Indicators
  • Table: World Government Revenue Indicators
  • Table: World Fiscal Balance Indicators
• Chapter 5: Business Environment
  • Swot Analysis
  • Bmi Business Environment Risk Ratings
  • Business Environment Outlook
  • Table : Bmi Business And Operational Risk Ratings
  • Institutions
  • Table : Bmi Legal Framework Ratings
  • Infrastructure
  • Table : Labour Force Quality
  • Table : Europe, Fdi Annual Inflows
  • Table : Bmi Trade Ratings
  • Table: Top Expo Rt Destinations
  • Operational Risk
• Chapter 6: Key Sectors
  • Real Estate
  • Table: Cu Rrent And Forecast Offi Ce Rents , 2008-2014
  • Textiles & Clothing
  • Table: Texti Les And Clothin G Produ Ction And Int Ernationa L Trad E, 2006-2013
• Chapter 7: Bmi Global Assumptions
  • Global Outlook
  • A Non-Linear Recovery
  • Table: Global Assumptions
  • Table: Global & Regional Real Gdp Growth