Greece Country Risk Report Q4 2018
With Greece's creditors still to agree on significant debt relief, a banking sector still struggling with non-performing loans (NPLs) and a government tied to primary budget surplus targets, Greece's growth outlook is subdued.
This view is underpinned by severe structural issues facing the country, namely an unsustainable government debt load, a dire demographic profile and Greece's scant progress improving productivity over the past few years.
Although Greece will aim to run a 3.5% of GDP primary budget surplus in the years ahead, the country will remain dependent on bailout funds and debt relief measures from its creditors if it is to make any dent in its massive debt burden of around 180% of GDP.
The ruling Syriza-led coalition will struggle to build support as disillusioned voters move to opposition parties.
Greece will run a historically narrow current account deficit for the next few years, reducing previously systemic risks posed to macroeconomic stability from its large external imbalances.
With parliamentary elections scheduled for October 2019, the next Greek government could seek to challenge the reforms and fiscal targets agreed on with Greece's creditors.
Such an outcome would undoubtedly lead to growing fears of a potential 'Grexit', which would be net negative for Greece from a financial and political stability perspective. However, the possibility of a 'Grexit' remains low, with little appetite from Greece or the EU for such a scenario.
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