Greece must continue the effort for fiscal adjustment, but could be obliged to adopt further austerity measures if the global economic recovery stalls, the Organisation for Economic Cooperation and Development (OECD) said in a report on the economic prospects of its 33 members released on Thursday.
In the country chapter on Greece, the OECD said that Greece was broadly on track in its fiscal adjustment program, which aims at reducing the fiscal deficit to 7.6 percent by GDP by end 2011 from an upwardly revised 15.4 percent in 2009.
"A further decline in the deficit to around 6.5% of GDP is assumed in the projection for 2012 in line with the Economic Policy Program. However, in view of lower projected growth by the OECD, this would require additional measures compared to the program," the report noted.
It said that in May Greece narrowly avoided a prospect of default with the aid of a 110 billion euro European Union, European Central Bank and International Monetary Fund loan package, and agreed to advance measures for fiscal adjustment and economic reforms aiming to reduce its fiscal deficit to below 3 percent of its GDP by 2014.
The OECD warned, however, that Greece needs to carry on with the austerity program beyond that date so as to be able to address the increasing burden of its debt, which is estimated to peak in 2013 at 149 percent of GDP.
Lowering the deficit to below 3 percent of GDP by 2014, as envisaged by the program, is essential to correcting the unsustainable fiscal imbalances, even if this would require further austerity measures, according to the OECD, which added that the consolidation efforts need to continue beyond the program's horizon in order to reduce the very high debt burden.
The report projected that the Greek economy will shrink by 2.7 percent next year before entering a modest recovery in 2012 with a growth rate of 0.5 percent. Unemployment is projected to rise in 2011 to 14.5 percent and to 15.2 percent in 2012, against 12.2 percent projected for this year.
Successful pursuit of the program will minimise risks to the projected recovery, but could be slowed by social opposition, the OECD report added.