The Executive Board of the International Monetary Fund (IMF) today approved
in principle an SDR 1.3 billion (about €1.6 billion, or US$1.8 billion, 55
percent of quota) precautionary Stand-By Arrangement (SBA) for Greece.
The arrangement, which supports the authorities’ economic adjustment
program, has been approved in principle, which means it will
become effective only after the Fund receives specific and credible
assurances from Greece’s European partners to ensure debt sustainability,
and provided that Greece’s economic program remains on track. A second
Executive Board decision is needed to make the arrangement effective. The
arrangement will expire on August 31, 2018, shortly after the expiration of
the European Stability Mechanism program.
Following the Executive Board’s discussion, IMF Managing Director and Chair
of the Executive Board, Christine Lagarde said in a statement:
“I strongly welcome Greece’s new economic adjustment program, which focuses
on policies that will help restore medium-term macroeconomic stability and
growth, and supports the authorities’ efforts to return to market financing
on a sustainable basis. The program provides both breathing space to
mobilize support for the deeper structural reforms that Greece needs to
prosper within the euro area, and a framework for Greece’s European
partners to deliver further debt relief to restore Greece’s debt
sustainability.
“The newly-legislated measures broadening the income-tax base and reforming
pension spending are critical to rebalancing the budget toward more
growth-friendly policies. In the medium run, they will help achieve an
ambitious primary surplus target of 3.5 percent of GDP. However, this
target should be reduced to a more sustainable level of 1.5 percent of GDP
as soon as possible, to create fiscal space for better targeting social
assistance, stimulating public investment, and lowering tax rates to
support growth. Protecting vulnerable groups, while maintaining fiscal
soundness, is key to preserving the sustainability and fairness of Greece’s
adjustment effort.
“Rehabilitating the financial sector is essential to restoring credit and
fostering growth. The new program will support efforts to reduce Greece’s
exceptionally high non-performing loans by strengthening the debt
restructuring legal framework. Moreover, to safeguard the banking sector’s
soundness and facilitate the rapid relaxation of capital controls, the
supervisory authorities should take additional steps, including undertaking
an updated asset quality review and stress test, to ensure that banks are
adequately capitalized before the end of the program.
“Despite progress on the structural front, Greece’s overarching challenge
remains the liberalization of restrictions that impair its investment
climate. Thus, the authorities should reconsider their plans to reverse
cornerstone collective-bargaining reforms after the end of the program, and
should instead focus on redoubling efforts to open up still protected
product and service markets, so as to facilitate investment and create new
jobs. They should also redouble efforts to protect the credibility of the
statistical agency and guarantee its independence.
“As we have said many times, even with full program implementation, Greece
will not be able to restore debt sustainability and needs further debt
relief from its European partners. A debt strategy anchored in more
realistic assumptions needs to be agreed. I expect a plan to restore debt
sustainability to be agreed soon between Greece and its European partners.
Effectiveness of the new Stand-By Arrangement is contingent on this
agreement on debt relief, as well as implementation of the program.”
ANNEX
Recent Economic Developments
GDP was flat in the last three years. The economy has stabilized after a
crisis of confidence in 2015, but economic uncertainty, limited access to
financing, record-high non-performing loans, and remaining capital controls
are holding back investment.
Growth resumed modestly in the first quarter of 2017, on the back of
resilient consumption and an inventory buildup. The labor market has
recovered gradually, although mainly due to an increase in part-time
employment. Poverty and inequality remain among the highest in the euro
area.
The primary fiscal balance was in surplus in the last two years, supported
by ongoing fiscal consolidation. Last year, the surplus exceeded the
authorities’ fiscal target by a large margin, owing to additional spending
compression relative to budget, better-than-expected wage and profit
outturns, and also large one-off factors. This year, the cumulative primary
balance outturn through May 2017 is lower than a year ago, due to lower tax
revenues and EU investment-related transfers.
Program Summary
The Greek authorities’ economic program is narrowly focused on policies
that can help restore macroeconomic stability in the medium run and
facilitate market access. It seeks thereby to provide breathing space to
mobilize broad political support for the deeper structural reforms needed
for Greece to liberalize its economy and prosper within the euro area in
the long run. The program will also provide a framework for Greece’s
European partners to deliver debt relief to restore Greece’s debt
sustainability.
Fiscal policy:
The program focuses on rebalancing the budget toward more growth-friendly
and socially-inclusive policies in the long run. A package of income tax
and pension reforms—aimed at reducing exceptionally generous tax exemptions
for the middle classes and unaffordably high pension spending—has been
legislated upfront and will be implemented once the output gap narrows.
These measures help support the authorities’ ambitious medium-term primary
surplus target of 3.5 percent of GDP agreed with the European partners for
2019-22. After 2022, the surplus target is expected to be lowered—the level
remains to be agreed in the context of debt discussions—and the resultant
fiscal space be used to bolster Greece’s social safety net, boost public
investment, and lower taxes to support jobs and growth
Financial sector reforms:
The financial sector strategy is narrowly focused on creating the
conditions for addressing high non-performing loans by strengthening and
implementing the legal framework for debt restructuring. The authorities
are committed to relaxing capital controls rapidly but prudently, while
safeguarding financial stability.
Structural reforms:
In addition to preserving the cornerstone labor market reforms during the
program period, the program supports a reform of collective dismissals and
implementation steps for ongoing reforms fostering competition,
liberalizing Sunday trade and select closed professions, and facilitating
investment.
Debt relief:
Greece’s debt remains unsustainable. Further discussions are needed to
converge on a strategy based on realistic assumptions and on a broadened
scope for debt relief to restore Greece’s debt sustainability.
Growth
Expectations
Predicated on full implementation of the reforms above, output is projected
to rebound strongly over the medium term. It is projected to grow by 2.1
percent this year and 2.6 percent next year, on the back of continued
resilient private consumption and a recovery of investment from low levels,
supported by EU funds and improved confidence. Over the long run, growth is
expected to converge to its potential steady-state rate of 1 percent,
driven by the effects of continued structural reforms required to overcome
the negative impact of population aging.
Additional Background
Greece became a member of the IMF on December 27, 1945, and has a quota of
SDR 2.4 billion (about €3.0 billion, or US$3.4 billion).
For additional background on the IMF and Greece, see:
http://www.imf.org/external/country/GRC/index.htm
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Greece: Selected Economic Indicators 1/
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Population (millions of people)
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10.8
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Per capita GDP (€'000)
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16.3
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IMF quota (millions of SDRs)
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2,428.9
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Literacy rate (percent)
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97.5
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(Percent of total)
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0.51
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Poverty rate (percent)
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35.7
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Main products and exports: tourism services; shipping
services; food and beverages; industrial products;
petroleum products; chemical products.
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Key export markets: E.U. (Italy, Germany, Bulgaria, Cyprus,
U. K.), Turkey, U.S.
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2015
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2016
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2017
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2018
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2019
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2020
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2021
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2022
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(est.)
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(proj.)
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Output
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Real GDP growth (percent)
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-0.2
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0.0
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2.1
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2.6
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1.9
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1.9
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1.8
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1.0
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Employment
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Unemployment rate (percent)
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24.9
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23.6
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22.3
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20.7
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19.5
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18.4
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17.8
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17.1
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Prices
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CPI inflation (period avg., percent)
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-1.1
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0.0
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1.2
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1.3
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1.4
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1.6
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1.7
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1.7
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General government finances (percent of GDP)
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Revenue
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48.2
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50.0
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48.4
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46.8
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46.7
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46.1
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45.2
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45.0
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Expenditure
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51.3
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49.2
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50.1
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47.7
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46.3
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45.9
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45.1
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45.2
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Fiscal overall balance
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-3.1
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0.8
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-1.7
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-0.9
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0.4
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0.2
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0.1
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-0.2
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Fiscal primary balance
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0.5
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4.2
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1.7
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2.2
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3.5
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3.5
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3.5
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3.5
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Public debt
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179.4
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181.6
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178.8
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183.2
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176.5
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170.0
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163.9
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159.5
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Money and credit
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Broad money (percent change)
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-17.8
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2.2
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…
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…
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…
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…
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…
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…
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Credit to private sector (percent change)
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-3.6
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-4.5
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…
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…
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…
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…
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…
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…
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3-month T-bill rate (percent)
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4.5
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3.1
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…
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…
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…
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…
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…
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…
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Balance of payments
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Current account (percent of GDP)
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0.1
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-0.6
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-0.3
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-0.1
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-0.1
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-0.1
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0.1
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0.0
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FDI (percent of GDP)
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0.5
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-1.9
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-1.6
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-1.3
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-1.7
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-1.7
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-1.7
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-1.7
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Reserves (months of imports)
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-1.3
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-1.5
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-1.5
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-1.4
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-1.3
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-1.3
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-1.2
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-1.2
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External debt (percent of GDP)
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251.1
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245.8
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240.1
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234.0
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228.7
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223.1
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217.5
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214.5
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Exchange rate
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REER (percent change)
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-4.9
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0.6
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-0.4
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-0.4
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-0.4
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-0.2
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-0.4
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-2.1
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Sources: Elstat; Ministry of Finance; Bank of Greece; World
Bank, World Development Indicators; IMF, International
Finance Statistics; IMF, Direction of Trade Statistics; and
IMF staff projections.
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1/ Data according to ESA-2010 methodology.
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