After the deal at the Euro-Summit, there are still questions that puzzle me.
The first is the question related to growth. At which moment in the future can we imagine a growth take off in Greece? There are some minor measures on competition (shops open on Sunday and liberalization for pharmacy ownership and bakeries) and on the labor market. They can improve the situation but will not create a boost that will be able to change the global picture.
Last Thursday, Alexis Tsipras mentioned that the target for primary surplus was 3.5% of GDP in 2018 versus less than 1% this year. This means that an extra saving of 2.5% will be needed in the 3 year to come. It will come from higher VAT rate and lower pensions. This will lead to lower internal demand and then to a poor GDP performance.
In 2014, austerity was a bit lighter and we saw the beginning of a rebound in activity and in jobs at the end of the year. The phenomenon was the same than in the UK and in Spain since 2013: less austerity implies stronger growth momentum.
Since the beginning of the year the situation was messy with the arrival of Syriza at the government but we cannot expect a rapid improvement after the measures Greece will have to take.
In other words, after a deep drop in GDP during the last five years, we do not expect a rapid recovery. Probably, recession will remain the main word to describe the Greek outlook.
The retirement reform that is expected to be presented at the end of October will have the same effect. With the large drop in GDP, the reform will scale down contributions and pensions to the lower level of activity. This will also penalize growth.
Two questions are associated with this issue Continue reading