November, 2015

CONTENTS  Macroeconomic projections for the period Key exogenous assumptions for the projections Baseline macroeconomic scenario for the period 2015 – 2017

External environment External environment  Slower global growth than expected due to slow-down in the economic activity in the emerging countries and slower than expected recovery in advanced countries.  Downward risks to the projected growth more pronounced compared to April projection, mainly related to: Higher risk aversion and increased volatility in the global financial markets Sharp and unexpected changes in primary commodities prices The risks for stagnation and persistent low inflation in advanced countries still present

Foreign demand  Foreign effective demand growth rate in 2015 unchanged compared to April  Slight downward revision for 2016, on the backdrop of the weaker prospects for the Greek economy  The expectations for gradual recovery of the foreign demand unchanged

Foreign effective inflation Foreign effective inflation  Foreign effective inflation forecast – minor downward correction relative to the April forecast  Lower pressures on domestic prices than previously expected

World prices of primary products  The environment of low commodity prices persists further, with prices of primary commodities lower than expected in April  Lower import pressures on domestic prices in compared to the previous forecast  Terms of trade picture more mixed: lower energy and food prices –favorable change; lower metal prices – adverse shock for the terms of trade

GDP  The assumptions on the fundamentals in the growth forecast unchanged:  continuation of the strong government investment incentive  positive effects of the existing and expected FDI-based facilities  continuation of the positive trends in the labor market  solid credit support  Moderate acceleration of growth over the forecasting period ( )  More growth conducive external environment  Further positive effects of the structural changes on the export sector  More stable domestic environment Economic growth for has been revised downwards due to the worsen global prospects and higher uncertainty in the domestic economy connected with the political instability… …yet, we expect solid growth over the forecasting period ranging from 3.2% in 2015 to 4% in 2017

GDP expenditure components  GDP growth driven mainly by export and investments, and private consumption in addition  Moderate growth in public consumption in , in accordance with the medium term fiscal strategy  Higher exports and domestic demand will result in increase in imports over the projection period leading to negative contribution of net exports in

Consolidated Budget of Central Government and Funds

Inflation  Inflation forecast for 2015 and 2016 has been revised downward to around 0% and 1,5%... …amid lower initial conditions and downward adjustments in the key exogenous assumptions  Inflation is expected to gradually pick-up in 2016 and The point forecast for the 2016 and 2017 stands at around 1.5% and 1.6%, respectively… …driven by the import prices and the recovery in aggregate demand

Balance of payments - current account  Lower current account deficit, compared to the previous forecast, being a result of all of its components  Moderate current account deficit in the following three year period of bellow 2% of GDP on average  Decline in 2015, amidst lower energy deficit, positive impact of the new facilities, while the traditional segments were worse off  Mild widening of the current account within the next two years  Reduction of the relative share of private transfers in GDP  Larger primary income deficit  No major changes in the trade deficit

Balance of payments – trade balance  Relatively stable trade deficit, with…  …larger import pressures, driven by investments mainly and export-related imports, but also…  …diverse performances of the traditional export sector, but general recovery expected - positive impact of structural changes to be kept and strengthen further - more conducive global environment

Balance of payments - current account Export diversification by products and trading partners

Balance of payments - financial account  The structure of capital inflows in the period, mainly a combination of foreign investment and borrowing of the public sector  After the growth of the gross external debt in 2014, a stabilization expected in the period ahead  Expected increase in foreign reserves in the next three years with adequacy ratios remaining in the safe zone

Foreign reserves Foreign reserves adequacy indicators remain in the safe zone

Gross external debt External debt ratios expected to stabilize in the forthcoming period

Credit growth  Credit support to the private sector proceeded in 2015, albeit at a slightly slower pace compared to the forecast  Slower than expected growth in deposits, amidst heightened foreign and domestic risks  The downsize of the sources of financing, and the unfavorable balance of risks resulted in lower credit forecast compared to April  Yet, the new forecast still envisages solid credit growth of 7.7% and 7.3% in 2015 and 2016 respectively and acceleration 8.3% in 2017  Further increase in financial intermediation: loans/GDP in 2017 around 52.4% (an increase of around 11 percentage points in the crisis period after 2008)  The banking system remains stable, with high capital adequacy ratio (16.2% as of June 2015), high liquidity and relatively stable share of non-performing loans (11.5% as of June 2015) *Negative net-percentage is presenting easing of the credit conditions and decreasing credit demand. Positive net-percentage is presenting tightening of the credit conditions and increasing credit demand.

Monetary policy and macro-prudential measures during 2015 – Preventive measures towards Greece: In June 2015, NBRM introduced measures for prevention of capital outflows to Greece, that are time-bound (valid for 6 months) and with the role to counter possible contagion risks from Greece. – Reserve requirements: In August 2015, NBRM has modified the reserve requirements setup by decreasing the reserve ratio on households deposits in Denar with contractual maturity over one year from 8% to 0%.

Monetary policy implications Monetary policy implications Latest macroeconomic scenario for does not change fundamentally the monetary policy environment:  Lower, but still solid economic growth supported by domestic banks’ credit activity  Inflation to remain low and stable  “Benign” external position assuming moderate increase in CA deficit and adequate level of gross foreign reserves, enabling sufficient buffers against potential unforeseen shocks  Risks remain skewed to the downside related to rising global risks and domestic political uncertainties Further monetary adjustments contingent on the external sector developments and the gross foreign reserves dynamics

Summary  Expected growth for has been revised downwards due to worsen global prospects and higher uncertainty in the domestic economy connected with the political instability  Yet the new forecast continues to envisage strong growth rates, driven by exports and investment  Downward adjustment of the inflation projection, due to supply side factors  Smaller current account deficit compared to the April projections. After the narrowing in 2015, we retain the assessments for a moderate widening in the next two years ( )  Gross foreign reserves are expected to mildly increase over the period, and remain at an adequate level  Sensitivity of the scenario to possible changes in the global economic environment and potentially rising political instability at home