Greece’s economic activity is expected to accelerate markedly in 2017 on account of strengthened economic sentiment after the conclusion of the first review of the ESM program, and stabilization of public finances.

Furthermore, unemployment rate is set to continue decreasing from very high levels. Real GDP growth (Forecasts: 2,7%) is expected to gradually pick up during the second half of the year notably driven by higher liquidity in the corporate sector amid clearance of arrears. This growth shall lead to the gradual relaxation of capital controls over time. Real GDP is expected to continue recovering at a robust pace in 2018, with growth forecast to reach 3.1%.

Domestic demand is expected to increase, with investment fueling a positive net exports contribution. Investment is expected to take off in 2017 backed by improved credit conditions and EU funding. Employment is projected to rise at a broadly stable pace until 2018 and unemployment to keep decreasing, reflecting lagged effects of economic recovery, still subdued wage dynamics and the impact of labour market reforms. Net exports’ contribution to growth should turn positive in 2017 on account of increased goods exports driven by recent competitiveness gains and higher investment in the sector. The Harmonized Index of Consumer Price (HICP) is expected to picking up over the next two years (2017 and 2018) as domestic demand strengthens. Wages are expected to increase along with economic recovery.

By end 2016, the authorities have adopted the 2017 Budget and Medium-term Fiscal Strategy 2017-20, including any adjustments in fiscal policies needed, to ensure the achievement of the ESM program primary balance targets of 1.75% of GDP in 2017 and 3.5% of GDP in 2018. An upside risk to this forecast is the persistence of the strong revenue performance seen so far this year on the back of the improving macro-economic performance and revenue administration reforms. Downsides include ongoing spending slippages and potential deviations in the yields of the large fiscal reforms worth 1.6% of GDP (personal income tax, pensions) agreed in the first review for 2017, which have high implementation risks.

Finally, the improved fiscal position and positive GDP growth in 2017 are expected to put the debt-to-GDP ratio on a declining path starting in 2017. Furthermore, interest expenditure is projected to decrease over the forecast years due to declining interest rates for financial assistance loans and updated interest consolidation