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Greek economy to stay in recession in 2016 – think tank IOBE

A Greek national flag flutters on a tractor during a demonstration of Greek farmers against planned pension reforms, next to the main motorway linking Athens to the north of the country, in Tempi,

By George Georgiopoulos

Greece’s economy contracted by about 0.5 per cent last year, less than previously expected, and will stay in recession this year without a strong surge in investment, the country’s influential think tank IOBE said in a quarterly report on Thursday.

Athens and its eurozone creditors have yet to conclude a first review of compliance with reforms prescribed in the country’s third bailout, which would pave the way for debt relief discussions.

“If the bailout review closes relatively quickly, the economy may turn to positive rates around mid-year, meaning this would contain the recession, which we estimate around 1.0 to 1.5 per cent for the year as a whole,” said IOBE chief Nikos Vettas.

In October, the Foundation for Economic and Industrial Research (IOBE) projected a contraction of 1.5 to 2.0 per cent in 2015 after the imposition of capital controls in July.

“The bank holiday and capital controls did not come as a surprise, they were discounted to an extent after months of uncertainty. Businesses and households were preparing for such an outcome so the impact on their ability to fund consumption was small,” the report said.

IOBE attributed the milder contraction to strong tourism, with cheaper energy costs and a weaker euro helping out on the balance of payments front.

But, it said, investment remains a weak spot that will keep the 173 billion euro economy in recession this year as well, coupled with pressure on disposable incomes due to higher taxation and deleveraging.

“The weak link in the national output equation, once again will be investment. Growth cannot come before conditions are created for a strong investment wave,” the report said.

Also, the cash that households took out of the banking system is gradually being depleted, meaning a small drop in consumer spending is likely this year.

The projected recession will halt the slight easing in the jobless rate seen last year, with IOBE forecasting unemployment will rise to around 25.5 per cent from 24 per cent in the third quarter of 2015.

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