Greece prospects improving despite prolonged recession

Athens: Data released last week showed Greece entered its sixth straight year of recession, but there is now cautious optimism about the economy’s prospects, although unemployment is still hitting record highs and consumers are squeezed by pay cuts and tax hikes.

On Tuesday, Greece’s battered debt ratings received a rare upgrade from Fitch, which noted ‘clear progress’ on eliminating deficits.

Relations with sceptical creditors have been repaired in recent months, permitting Greece to draw successive loan instalments from the Eurozone in return for bringing reforms back on track.

Foreign hedge funds are helping Greek banks to recapitalise after a damaging state debt write-down last year and a long-delayed privatisation programme is finally getting off the ground, enabling Prime Minister Antonis Samaras to embark on a four-day journey to China this week in search of new investments.

“We are now more than half the way through to make a real comeback,” Samaras said in a speech at the Chinese academy of social sciences in Beijing, where he noted that Greek bond spreads — the gauge for country risk — have receded by about two-thirds from record levels a year ago. “I wouldn’t be here if we hadn’t turned in Greece our ship around.”

In 2008, Greece signed with Chinese shipping giant Cosco a 35-year concession agreement to run two container terminals at Piraeus, the main Greek port.

Now, Greece is hoping to entice Chinese interest in the privatisation of Athens International Airport and the sale of railways and real estate.

“Greek ports, Greek airports and Greek railways can be a part of large commercial network extending way beyond Greece in the European hinterland,” Samaras said.

Athens also hopes to pitch the state’s gas distributor to Russian investors and water companies to French firms.

In return for two EU-IMF bailouts worth €240 billion ($309 billion, Dh1.13 trillion), Greece has pledged to raise €9.5 billion in asset sales by 2016. But in addition to bringing money into state coffers, Greek officials say privatisation is needed to bring investment into companies to help spur growth and job creation. Unemployment in the country has climbed to 27 per cent, a level unseen in Greece’s modern history, with the rate at over 64 per cent among the young.

Samaras said the austerity “is reaching a level of unbelievable social pain and dramatic problems in the area of social cohesion.”

Under the terms of its economic bailout, Athens must cut another 4,000 state-sector jobs this year and 11,000 in 2014.

On three occasions this year, Samaras’ government has enacted emergency decree to thwart strikes from sailors, transport workers and teachers.

“Economic indicators should begin to slowly improve,” Natixis analyst Jesus del Castillo said this week. “But major risks remain in terms of political stability, reform application and external shocks.”

The state statistics agency on Wednesday said Greece’s economy had contracted by 5.3 per cent in the first quarter of 2013 in an annual comparison.

The equivalent contraction in the first quarter of 2012 had been 6.7 per cent of output, the agency said.

“The first-quarter estimate of Greek GDP and the credit rating upgrade by Fitch suggests that the economy may finally be turning a corner,” London-based analysts Capital Economics said in a note. “But we still think that the economic forecasts underpinning the rescue package are too optimistic, implying that doubts about the Greek bailout may return again in time.”