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She Eleftherias Kourtalis
Oxford Economics predicts a 6% decline in Greece this year, while noting that it can be much deeper if restrictive measures are reduced at a very slow rate. At the same time, he estimates that the possibility of Greece being upgraded by houses this year is completely off the table, while despite the support of the ECB’s QE, Greek debt will remain dangerously high, leading to its new forced restructuring.
More specifically, as a new report points out, the impact of the pandemic on the vulnerable Greek economy means that none of the four companies, which now offer stable credit ratings, will improve their rating by putting “ice.” The upward trend in ratings to beginning of the year.
As soon as Greece has started to recover from the recent economic crisis, measures to reduce the pandemic will cause the economy to sink into a new recession, notes Oxford Economics. Its new forecast is for Greece’s GDP to drop to at least 6% this year, and it will be much higher if the restraining measures are continued or reduced more gradually than expected. The impact on tourism, which is the “lifeline” of the Greek economy, is a particular concern, he notes. If travel restrictions and hotel closings continue in the third quarter, which is the peak of the tourist season, the revenue losses will be significant and will have far-reaching consequences.
The imminent scale of the impending recession has forced the government to take a series of fiscal measures totaling 6,800 million euros (3.5% of GDP). The crisis will inevitably lead to a large budget deficit this year (5.8% of GDP), reversing the recent trend in surpluses.
Debt and the “pillow”
Again, however, the risks of even worse fiscal performance are significant, as additional stimulus measures are likely to be required. The financial loss is expected to send the public debt / GDP ratio from 179% to approximately 186% in 2020.
The situation would be much worse if there were not a significant “buffer” of government liquidity, around 20 billion euros (with an additional 15.7 billion from the ESM) and although a large part of these reserves can be used to cover the budget gap This year, and to reduce the growth of public debt, the government will be careful not to completely deplete the “buffer”, since, according to Oxford Economics, this could negatively affect bond yields and make them particularly vulnerable in the future.
An important development is the inclusion of Greek bonds in the new ECE QE, which will help reduce the country’s borrowing costs and alleviate some of the possible financing problems, given recent tensions in the financial markets. The ECB has also accepted Greek bonds as collateral for financing in Greek banks, thus supporting liquidity in the economy and the ability of banks to finance loans.
Difficult year for banks
However, it will be a difficult year for Greek banks, as Oxford Economics warned, as the pandemic has weakened their efforts to dramatically reduce the portfolio of bad loans. Despite government measures, the sharp recession will undermine borrowers’ ability to repay their debts, possibly leading to a new wave of toxic loans.
New debt restructuring
Even before the coroner’s outbreak, Oxford Economics believed that Greece would have to undergo a further debt restructuring to avoid the high-debt / low-growth trap it was in. This new external shock of the pandemic, as he points out, has worsened Greece’s already weak economic position, and GDP is projected to return to pre-crisis levels by 2040. If creditors demand fiscal adjustment sooner than warranted due to economic conditions, this will seriously damage the recovery of the economy. Thus, as he points out, the historical shock will weaken Greece’s long-term economic position, reinforcing the Oxford Economics view that debt restructuring will be necessary to restart the economy.
