Consolidation In The Greek Banking Sector by Eurobank from Ben Graham Centre Conference.
Macroeconomic update
Adjustment program achievements & socioeconomic costs
Notable progress in correcting macro imbalances
- Twin deficits nearly eliminated
- Price competitiveness restored (Unit Labor Costs in Real Effective Exchange Rates back to pre-Euro entry levels)
- Average maturity of Greek public debt extended significantly (c. 16.5 years currently vs. 6.3 years in 2011)
- Effective interest rate on debt stock currently below 3 percent, among the lowest in the euro area
- Real GDP up 0.7% in 2014 following 25ppts contraction in prior 6 years But, fiscal adjustment heavily front-loaded and progress on structural reforms broadly uneven
- Adjustment in consumer prices has seriously lagged behind adjustment in wages, putting additional pressure on incomes
- Current account adjustment mainly driven by imports compression
- Goods exports performance improving lately, but not yet in line with huge adjustment in relative Unit Labor Costs
- Unemployment still at very high levels, despite last year’s 2ppts improvement (26% in December)
- Problem exacerbated by weak social net e.g. limited jobless benefits and health care to long-term unemployed
Twin deficits eliminated
- Positive current account (CA) balances in 2013 & 2014 for the first time on record (since 1952)
- CA adjustment mainly due to sharply lower imports and, to a lesser extent, higher services exports (tourism)
- Fiscal adjustment in last 5 years unprecedented by historical standards
- Structural primary balance improved by more than 19ppts-of-GDP since 2009
- Greece’s cyclically adjusted primary balance was the highest in the euro area in 2014
Notable improvement in domestic economic activity in 2014
- Real GDP up 0.7% in 2014, with strong gains recorded in most expenditure-side components
- Positive private consumption growth following 5 consecutive years of steep declines
- Notable improvement of investment activity in 2H 2014 (+11.3% Y-o-Y), mostly reflecting strong gains in investment spending on tools, machinery and transportation equipment
Serviceability of Greek public debt improved considerably
- Serviceability of Greek public debt has improved considerably following the 2012 debt restructuring (PSI) & debt buyback as well as the relief package decided at the Nov. 2012 Eurogroup
- Rise in debt ratio since 2009 (by 48ppts-of-GDP) entirely due to the economic recession
- Snow ball effect to start automatically reducing the debt ratio once nominal GDP growth rises above 2.5 percent
See full slides below.