Draft budget forecast signals end to Greece recession in 2014
(Reuters) – Greece will emerge from six years of recession next year, a draft budget forecast on Monday, signaling the country is past the worst of a crippling debt crisis that nearly broke Europe’s single currency.
Twice bailed-out Athens also confirmed it would post a budget surplus before interest payments this year for the first time in over a decade, and its battered economy won a vote of confidence from billionaire U.S. investor John Paulson.
The positive outlook marks a sharp reversal in fortunes for a nation that had become Europe’s problem child, lurching from one crisis to the next as it tottered close to bankruptcy and exasperated its international partners with broken promises.
Analysts cautioned that despite the signs of economic stabilization Greece remained hooked on aid and that further debt relief was inevitable to bring down a level of indebtedness set to top 175 percent of gross domestic product this year.
“The key thing is that while things are improving they’re doing so from a very low level in Greece. Greece still needs financial assistance from outside,” said Ben May, economist at London-based Capital Economics.
“Certainly there are signs that the worst of the crisis may well be over in the euro zone in the short term but you could easily see concerns flaring up longer term.”
The Greek economy, which has shrunk by about a quarter since its peak in 2007 and thrown more than one in four out of work, will grow by a modest 0.6 percent next year thanks to a rebound in investment and exports including tourism, the budget predicted.
In a further boost, Athens forecast a primary budget surplus of 1.6 percent of national output next year after posting a small surplus of 340 million euros this year.
Attaining a primary surplus – which excludes debt servicing costs – makes Athens eligible for further debt relief from its European Union and International Monetary Fund lenders.
“In the last three years Greece found itself in a painful recession with an unprecedented level of unemployment,” Deputy Finance Minister Christos Staikouras said as he unveiled the 2014 budget. “Since this year, the sacrifices have begun to yield fruit, giving the first signs of an exit from the crisis.”
Athens will ask its creditors to honor their commitment to provide debt relief, and hopes it can return to the bond markets in the second half of next year, Staikouras said.
Greece is hoping for an extension of maturities and lower interest rates on bailout loans after its partners ruled out an outright write-off of debt. It also expects to receive a third bailout of about 10 billion euros to get through next year.