Executive Summary................................................................................................................................. 5
Core Views......................................................................................................................................................................................5
Major Forecast Changes................................................................................................................................................................5
Key Risks To Outlook....................................................................................................................................................................5
Chapter 1: Political Outlook..................................................................................................................... 7
SWOT Analysis.......................................................................................................................................................... 7
BMI Political Risk Ratings........................................................................................................................................ 7
Political Outlook ....................................................................................................................................................... 8
The Toxic Politics Of Austerity.....................................................................................................................................................8
The Greek government has managed to get yet another austerity bill through parliament in what has now become a rather formulaic
sequence involving deeper recession, missed targets, new austerity, more protests and heightened financial turmoil.
TABLE: POLITICAL OVERVIEW..............................................................................................................................................................................8
Long-Term Political Outlook.................................................................................................................................... 9
Instability.........................................................................................................................................................................................9
Greece's political landscape is likely to become more tumultuous in the coming years. The legacy of fiscal profligacy and economic
distortions will leave an indelible mark on the Greek economy and society, with political voices potentially becoming more fragmented.
We therefore expect a prolonged bout of austerity and instability in the decade ahead.
Chapter 2: Economic Outlook................................................................................................................ 13
SWOT Analysis........................................................................................................................................................ 13
BMI Economic Risk Ratings................................................................................................................................... 13
Economic Activity .................................................................................................................................................. 14
Turning The Corner In 2013.........................................................................................................................................................14
The Greek economy remains deep in the mire and heading towards a fifth year of depression in 2013. However, we maintain that the
pace of economic contraction is set to ease towards the end of 2013 as a result of the government being granted a two -year extension
on its fiscal consolidation targets, an improvement in foreign demand and monetary expansion from the US Federal Reserve and
European Central Bank.
TABLE: ECONOMIC ACTIVITY.............................................................................................................................................................................14
Debt Policy............................................................................................................................................................... 16
Debt Restructuring: From PSI To OSI........................................................................................................................................16
The eurozone's finance ministers have agreed to a range of measures aimed at restoring Greek debt sustainability. However, we
continue to argue that, without further haircuts, meeting the IMF's sustainability criteria would be extremely challenging.
Balance Of Payments.............................................................................................................................................. 18
Current Account Surplus On The Horizon.................................................................................................................................18
Having appeared to stumble in 2010 and 2011, the rebalancing of Greece's external account has picked up considerable pace in 2012.
So much so, in fact, that a current account surplus is now likely by 2014-2015, or even earlier if exports continue to accelerate pace.
TABLE: CURRENT ACCOUNT.............................................................................................................................................................................18
Monetary Policy ...................................................................................................................................................... 20
Consumer Price Deflation Awaits In 2013..................................................................................................................................20
Although Greek inflation ticked up in October, with full-year inflation now likely to overshoot our 2012 estimate, we still expect a shift into
deflation in 2013. This will be underpinned by further demand destruction, a punishingly high unemployment rate and a continuation of
the government's fiscal austerity program me .
TABLE: INFLATION...............................................................................................................................................................................................21
Banking Sector........................................................................................................................................................ 21
Contraction Continues Apace.....................................................................................................................................................21
The Greek banking sector has yet to turn the corner, with the continued contraction in industry assets matched by an acceleration in
deposit withdrawals as households and firms have sought to safeguard capital in light of the uncertainty over Greece's membership to
the eurozone. We expect another two years of industry contraction and stress that support from the European Central Bank will remain
crucial.
Eurozone Currency Forecast................................................................................................................................. 22
Euro Downtrend: Temporary Disconnect..................................................................................................................................22
Having rallied into the third quarter following the European Central Bank (ECB)'s pledge to purchase encumbered eurozone sovereign
debt (conditional on the target member state first agreeing to a structural macroeconomic adjustment programme), the euro is now
hovering around US$1.3000/EUR.
Eurozone Monetary Policy..................................................................................................................................... 24
The Evolution Of The Monetary Transmission Mechanism......................................................................................................24
Having pulled all of the traditional levers of monetary policy, the European Central Bank (ECB) is now embarking on a course of more
unorthodox policies. Moreover, we believe that the evolution of the monetary transmission mechanism since the beginning of the global
financial crisis provides an important insight into the future workings of ECB policy.
Eurozone Banking .................................................................................................................................................. 26
Banking Sector: Financial Union Remains Elusive...................................................................................................................26
The eurozone banking sector has struggled in recent months on the back of the regional economic slowdown. However, with a pickup
in growth expected in 2013, and given the reduction in near-term systemic crisis risks, we expect a stronger showing in 2013. Over
the longer term, the formation of a banking union – currently being debated by member states – will be instrumental in stabilising the
eurozone banking system and fostering sustainable growth.
Chapter 3: 10-Year Forecast................................................................................................................... 29
The Greek Economy To 2021 ................................................................................................................................ 29
Lower Growth Path To Emerge Over The Long Term................................................................................................................29
With international credit conditions unlikely to return to pre-2008 levels over the foreseeable future, we expect both consumer and
investment spending to be more subdued over the longer term, anchoring the Greek economy onto a lower growth path than that seen
leading up to the global credit crisis.
TABLE: LONG-TERM MACROECONOMIC FORECASTS...................................................................................................................................29
Chapter 4: Business Environment......................................................................................................... 31
SWOT Analysis........................................................................................................................................................ 31
BMI Business Environment Risk Ratings.............................................................................................................. 31
Business Environment Outlook............................................................................................................................. 32
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS..............................................................................................................................32
Infrastructure........................................................................................................................................................... 33
TABLE: BMI LEGAL FRAMEWORK RATING.......................................................................................................................................................33
TABLE: LABOUR FORCE QUALITY.....................................................................................................................................................................34
Market Orientation................................................................................................................................................... 35
TABLE: TRADE AND INVESTMENT RATINGS....................................................................................................................................................35
Operational Risk...................................................................................................................................................... 36
Chapter 5: Key Sectors.......................................................................................................................... 37
Oil & Gas ................................................................................................................................................................. 37
TABLE: OIL & GAS – HISTORICAL DATA AND FORECASTS, 2009-2016.........................................................................................................39
Infrastructure .......................................................................................................................................................... 40
TABLE: CONSTRUCTION AND INFRASTRUCTURE INDUSTRY DATA, 2008 - 2016........................................................................................ 43
Other Key Sectors................................................................................................................................................... 45
TABLE: AUTOS SECTOR KEY INDICATORS.....................................................................................................................................................45
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS..................................................................................................................................45
TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS.....................................................................................................................45
TABLE: PHARMA SECTOR KEY INDICATORS..................................................................................................................................................46
TABLE: TELECOMS SECTOR KEY INDICATORS..............................................................................................................................................46
TABLE: FREIGHT KEY INDICATORS...................................................................................................................................................................46
Chapter 6: BMI Global Assumptions..................................................................................................... 47
Global Outlook......................................................................................................................................................... 47
Downward Revisions, But Core Views Remain Unchanged ....................................................................................................47
TABLE: GLOBAL ASSUMPTIONS........................................................................................................................................................................47
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST....................................................................................................................48
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS...............................................................................................................................48
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST...................................................................................................................49