PARIS, Nov 27 (Reuters) - Greece’s recession will drag on longer than currently foreseen, the OECD said in a report on Tuesday, urging Athens to focus on reforms to kickstart its economy rather than cutting its deficit at all costs.
The economy will not recover before 2015, after seven consecutive years of recession, the Organisation for Economic Co-operation and Development predicted in its economic outlook. That is a year longer than currently forecast by the country’s government, which expects the economy to recover in 2014.
“A return to positive growth is projected only towards the end of 2014 as world trade strengthens, confidence returns and competitiveness improves,” said the OECD, which expects Greek GDP to shrink by 1.3 percent in 2014, compared with a growth forecast of 0.2 percent that year by the Greek government.
Greece’s economy has shrunk by more than a fifth since its recession started in 2008, hit particularly by severe austerity measures imposed by the country’s international lenders to finance its rescues.
Greece adopted yet another round of austerity measures earlier this month, aiming to shrink its budget deficit to 3.2 percent of GDP in 2016 from 9.4 percent last year.
If a weaker than expected economy scuppers this plan, Athens should not blindly focus on meeting its fiscal targets, but allow social spending to absorb some of the recession and focus on structural forms to boost growth, the OECD said.
“The agreed consolidation measures should be put in place,” said the Paris-based organisation. “But if growth proves lower than assumed in the government’s fiscal plans, then the automatic stabilisers should be allowed to operate, even if this means missing the set targets.”
“The most vulnerable in Greek society need to be better protected from cuts in social spending,” the OECD said.
Greek households’ disposable income shrank by about 14 percent year-on-year in the second quarter of 2012, statistics agency ELSTAT said last week, as wages dropped by 15 percent and social benefits by 9.5 percent. Taxes soared by 37 percent over the same period, ELSTAT said.