With Greece's creditors not offering significant debt relief and the left-wing Syriza government attempting to reduce the fiscal deficit via tax hikes instead of expenditure cuts, Greece's economy will remain on a very low growth trajectory and will remain dependent on external aid by the time its current deal expires in 2018.
This view is underpinned by severe structural issues facing the country, namely an unsustainable government debt load, a dire demographic profile, and Greece's scant progress improving productivity over the past few years.
Although Greece's budget deficit is set to diminish in the years ahead, the country will remain dependent on bailout funds and debt relief measures from its creditors if it is to make any dent in its massive debt burden of 180% of GDP.
The ruling Syriza-led coalition will continue losing support as disillusioned voters move to opposition parties.
Greece will run current account surpluses for the next few years, reducing previously systemic risks posed to macroeconomic stability from its large external imbalances.
We do not rule out another debt crisis re-emerging in Greece in the next few years, given that stalled structural reform implementation is again leading to a standoff between Greece and its EU and IMF creditors.
Several more difficult years economically and declining support in the polls may prompt to the ruling Syriza party to try and rip up the terms of the bailout once again, in a last ditch attempt to retain popular support and improve the country's economic outlook.
Such an outcome would undoubtedly lead to growing fears of a potential 'Grexit', which would be net negative for Greece from a financial and political stability perspective.
|f = BMI forecasts. Source: National Sources/BMI|
|Nominal GDP, EURbn||177.6||176.0||177.7||181.5|
|Real GDP growth, % y-o-y||0.7||-0.2||-0.6||1.0|
|Consumer price inflation, % y-o-y, eop||-2.6||0.4||1.0||1.3|
|Exchange rate EUR/USD, eop||0.82||0.92||0.95||0.96|
|Budget balance, % of GDP||-3.7||-7.3||-3.6||-2.6|
|Current account balance, % of GDP||-2.1||-0.1||1.1||0.9|
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