Greece has the largest economy in the Balkans and is as an important regional investor. It is classified as a high-income service based economy.

The service sector contributes nearly 83 per cent to the GDP while industrial sector accounts for 13pc. With just four per cent contribution, the agricultural sector is a significant producer within the EU.

Between 2000 and 2007, annual GDP growth averaged slightly above four per cent, hitting its highest level at 5.8pc in 2003. The global financial crisis together with Greek government-debt crisis plunged the economy into a sharp downturn.

Annual growth turned negative at -0.2pc in 2015 and was flat at zero per cent in 2016. Consequently, income inequality shows a gradual decline from the relatively high level before 1980.

Due to the crisis, income inequality has been increasing since 2009. However, the increase is less than expected, based on a significant decline in per-capita GDP (PPP basis) which declined to $18,049 in 2016. As a result, the percentage of people at risk of poverty over the period 2007-2016 went up by eight points.

In 2015, unemployment rose to around 24pc. The seasonally-adjusted unemployment rate fell to 20.5pc in September 2017 from an upwardly revised 20.7pc in August. Despite declining number of unemployed, the Greek unemployment rate still remains more than double the eurozone’s average.

The economy entered recovery in 2017 following almost a flat growth in 2016. The recovery is expected to strengthen as investment rebounds and consumption growth rises. Economic sentiment has improved markedly and the Greek prime minister is confident that the economy will grow in 2017 after a nine-year recession.

The government sees economic recovery to gain momentum in 2018 when the GDP growth is likely to expand to 2.4pc. Both private consumption and investment activity are forecast to be robust in 2018.

On the fiscal side for 2018, the Greek economy is expected to achieve a primary surplus of 3.5pc of GDP. The headline fiscal balance to GDP ratio turned positive in 2016 with 0.7pc surplus for the first time since at least 1995, ranking Greece at the sixth higher fiscal performance in the EU.

The three times bailed-out Greece has made enough progress in balancing its budget to be removed from special oversight of government spending. Greece’s debt-to-GDP ratio is expected to decline to 179.6pc in 2017 and further to 177.8pc in 2018 on account of economic growth and the general government surplus forecasts.

The government aims to have fully regained access to bond markets by next August, when the programme ends and plans new bond issues in 2018. But international creditors express their concerns that even though Greece will have enough cash, it might not continue with the recent reform momentum.

Macedonia

Macedonia, a small landlocked country in the Balkan Peninsula, declared independence from Yugoslavia in 1991.

Since independence, it has made progress in liberalising its economy and improving its business environment, but lagged the Balkan region in attracting foreign investment. Corrup­tion and weak rule of law remain significant problems.

Today Macedonia maintains a low debt-to-GDP ratio and is experiencing a revitalised investment interest by companies from Turkey, Algeria, Albania, and others. It can meet its basic food needs but depends on outside sources for all of its oil and gas and most of its modern machinery and parts.

The World Bank has ranked Macedonia as an upper middle-income country. Economic growth at 2.4pc in 2016 was well below the levels of the previous two-years. It turned negative in the first-half of 2017, contracting by 0.9pc, mainly reflecting a large drop in investment amidst intensifying political instability. However, the resolution of the political crisis and formation of a new government in June 2017 seems to have paved the way for a restoration of confidence.

On the back of some strengthening in exports and private consumption, the IMF expects a 1.9pc growth for 2017 which is in line with the government prediction. But the World Bank has lowered its growth forecast for this year to 1.5pc.

Growth is expected to rebound to 3.2pc in 2018 supported by stronger investment and credit growth, expansion of export capacity and continued improvement in labour markets.

Unemployment has remained consistently high at about 30pc since 2008. Though the rate eased in 2016 and early 2017 helped by public investment and employment programmes, but labour-force participation has fallen to its lowest since 2012. It still remains consistently high at about 23pc.

The government has been loosening fiscal policy. The 2017 budget sees the deficit at 2.9pc of GDP, slightly down from the previous three per cent. The government plans to cut the budget deficit to 2.7pc of GDP in 2018.

The cabinet expects revenue growth to outpace expenditure growth next year. It plans to borrow 470 million euros from local and foreign financial markets to finance the planned budget deficit in 2018.

The IMF has supported the government’s plan to strengthen public finance management and increase fiscal transparency and emphasised that there is a need for fiscal consolidation, in light of the rapid rise in public debt in the past and high gross financing needs.

In the absence of durable consolidation measures, the fiscal deficit is expected to widen and public debt to rise. Public debt has been rising steadily from below 30pc of GDP in 2010 toabove 45pc at end-2016, almost near doubling since 2008 and are projected to rise to 47pc of GDP in 2017, driven by government’s borrowing and guarantees to State-Owned Enterprises, which although low by regional comparison, is significant for a small economy.

Published in Dawn, The Business and Finance Weekly, December 18th, 2017