FRANKFURT (MNI) – The Greek economy is expected to return to growth
in 2013 on the back of recovering investment and foreign trade, though
downside risks to the outlook “are substantial”, the Organisation for
Economic Cooperation and Development reported on Monday.

“The banking sector’s limited capacity to support growth posses
additional risks to the outlook,” the OECD said in its latest Economic
Outlook. “Growth could be further undermined by a marked weakening in
export markets.”

The report projected a GDP contraction of 6.1% this year and -3.0%
in 2012, followed by a return to meager growth of +0.5% in 2013.

The OECD also forecast the Greek deficit at 9% of GDP this year,
7%% of GDP for 2012 and 5.3% the following year.

“This implies that the debt-GDP ratio will continue to rise,” the
OECD said, projecting government debt, as defined under the Maastricht
treaty, to rise to 179.7% by 2013 from 160.9% in 2011 and 177.1% next
year.

“However, this projection is based on a weaker growth assumption
and excludes debt write-down measures in the October [EU Summit]
package, for lack of specific information on the details,” the OECD
noted.

It estimated that the private sector involvement agreed to by the
EU heads of state back in late October, which would mean a 50% haircut
on privately-held Greek bonds, could reduce the debt ratio by
approximately 35%. Assuming the country’s adjustment program remains on
track, the debt ratio could fall close to 120% of GDP by 2020, the OECD
report read.

Still, OECD stressed the need for authorities to remain focused on
applying reforms, warning that weakness in implementation “would
increase the risk of debt default.”

Unemployment is expected to continue its climb over the forecast
horizon, averaging 16.6% this year and reaching as high as 18.7% in
2013.

However, due to high joblessness and the “substantial degree of
economic slack,” inflation is projected to trend downward over the
coming years, from 3.0% on average this year to 1.1% in 2012 and 0.2%
the following year.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com

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