Austerity Measures Stifle Growth and Consumption: The 2016 Revision Returned Greece to Recession

Greece recorded a recession again last year, official data from the national statistical office showed on Tuesday, despite expectations from international creditors that activity would at least rise slightly after years of austerity and financial injections.

Economic activity decreased by 0.2 percent in 2016, according to the revised estimate of gross domestic product (GDP) published on Tuesday by the Greek statistical office ELSTAT.

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According to seasonally unadjusted data, household consumption fell by 0.3 percent, while a report in March showed a growth of 0.6 percent. The new data suggests that unemployment continues to hinder broader recovery, notes Reuters.

The trend in consumption will pose a challenge in 2017, believes economist Nikos Magginas from the National Bank.

Consumption Savings

Austerity measures imposed by the International Monetary Fund (IMF) and loans from the eurozone have significantly impoverished Greeks, consequently weakening consumption, explains Reuters.

The European Commission (EC) estimated in its winter forecasts from February that Greek GDP grew by 0.3 percent in 2016. The IMF revised its growth estimate to 0.4 percent.

This year, however, should bring growth in activity according to estimates from Greek institutes. The leading economic research institute in the country, IOBE, today published an estimate that the Greek economy will grow by just under 1.5 percent this year, and accelerate to 2.0 percent next year.

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The institute’s estimates are more modest than those of the Greek government, which predicts a GDP jump of 1.8 percent for 2017, having revised its May forecast of 2.7 percent.

The EC also revised its forecast for this year, from 2.7 to 2.1 percent. The Greek central bank, on the other hand, predicts growth of 1.7 percent in 2017 and acceleration to 2.4 percent in 2018.

Economic recovery will be crucial for reducing the unemployment rate, which stands at 21 percent and is the highest in the eurozone, as well as for maintaining a primary budget surplus of 1.75 percent – excluding debt repayment expenditures – which Greek creditors require for this year, concludes Reuters.