Latest developments in the global outlook, and the situation in Greece 18 February 2015 Alvaro Pereira Director, Country Studies Council

2 The IMF, World Bank and EC have revised down their global growth projections Lower oil prices are positive for global growth Still, recently there was some downgrading of the projected upturn in the euro area and Japan, with more of a slowdown in China NB The Interim Economic Outlook will be released on 18 March

3 OECD projections are likely to be revised up vs the November Economic Outlook Oil prices in 2015 have been nearly 40% lower than assumed in November The Outlook already took into account some of the downbeat data from Japan and the euro area The announced size and duration of the ECB’s expanded asset purchases was an upside surprise Several countries have eased monetary policy this year

4 Recent developments point to continued moderate global growth and low inflation United States strong job gains but weak wage growth income boost from low oil prices, but dollar appreciation hinders export growth headline and core inflation down Euro area better-than-expected Q4 GDP in Germany and continued growth in Spain and Portugal headline inflation negative since December (-0.6% in January)

5 Recent developments point to continued moderate global growth and low inflation China 2014 growth just below target (7.4%), with continued rebalancing to consumption and services inflation down to 0.8% in January Japan strong industrial production in Q4 2014, but weak consumption real wages still falling year-on-year inflation excluding tax effect below 1%

6 One major recent development was the election of the new Greek Government

7 In 2014 Greece experienced tepid growth GDP growth saar Inflation, y-o-y Unemployment rateTurnover in tourism sector (12-month moving average)

8 Towards the end of 2014, there were signs of renewed weakness PMI index

9 Uncertainty has increased 10-year bond yields have increasedTax revenues are falling (y-o-y % change)

10 Debt is still high Debt to GDP ratio Primary balance as a % of GDP

11 Debt service payments Interest payments In % of GDP, 2014 Amortization and interest payments In millions of euros The effective interest payments are lower because of the interest reimbursements from the ECB, EFSF and national central banks.

12 Banking system fragilities remain Greek banks’ exposure to Greek government debt Non-performing loans (Per cent of total loans, 2014Q2) Government debt-bank links are more contained Non- performing loans are still very high

13 Uncertainties are hurting the banking system Equity prices of banks (average of the 4 biggest banks) On 4 February the ECB decided to eliminate the waiver on Greek government bonds to be used as collateral in refinancing for Greek banks

14 New Government Programme New proposed reforms: Fighting tax evasion and corruption Breaking down monopolies and fostering competition Reforming public administration Introducing a minimum income support Implementing a social programme to deal with the social crisis Reforms that might be deferred or suspended: Privatisations Labour market reforms Downsizing of the civil service Reducing public pension payments

15 Potential risks Financial panic Fiscal slippage: reduction in fiscal targets, potentially a new tax amnesty with little impact on revenues and signalling a continuation of weak enforcement Minimum wage might be increased too fast