With recent events in Greece bringing bailouts back into the headlines, PwC economists have assessed how the five Eurozone bailout economies – Cyprus, Greece, Ireland, Portugal and Spain – have been performing.
The analysis shows that despite being the first to enter a bailout in 2010, Greece is now back to square one
Where do the other peripheral economies stand on their recovery path?
| Ireland – the star performer: Ireland has been the ‘poster boy’ of economic reform in the peripheral economies. Ireland grew by 5.2% in real terms in 2014 and PwC economists expect output to expand by a further 3.9% this year. In fact, Figure 2 shows that Ireland was the first of the bailed-out peripheral economies to see GDP break through its pre-crisis output level.
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Spain – financial sector restructuring is working: PwC economists expect strong growth of around 3% this year to gradually improve the financial system’s profitability and further reduce non-performing loan ratios. Spain has also kept its structural reform momentum going in the past 12 months with policy aimed at bringing down its high unemployment rate in the medium term. For these reasons, Spain is placed highly on the bailout path and is expected to exceed its pre-crisis GDP level by 2017.
Portugal – coming along but work still to do: Portugal has also made progress since the beginning of its bailout, but not to the same extent as Ireland and Spain. The economy is experiencing a cyclical upturn, growing in 2014 for the first time since 2010. But it still has to deal with a few structural issues. For example, its public debt to GDP ratio stands at 130%, the second highest of the five bailout economies.
Cyprus – roaring ahead: Greece has fallen behind Cyprus, which has now shifted its reform attention from public finances ―with the government posting a healthy primary surplus of 2.9% of GDP ―to structural reforms in the health and telecommunications markets. Cyprus is therefore still at the ‘reform, reform, reform’ stage of its programme, but making decent progress.
What’s next for the Eurozone periphery?
According to PwC economists, there are three things that businesses should watch out for in the Eurozone over the coming weeks and months:
- First, the policy response to any ‘wobbles’ in the latest Greek bailout discussions.
- Second, any signs of strengthening growth in the periphery.
- Third, the preparations for the European Banking Authority (EBA) banks stress tests, which will be carried out next year.
PwC senior economist Richard Boxshall says: “Over the longer-term, the big issue is the high stock of public, and in some cases private, debt. Achieving primary surpluses should help to stabilise public debt levels. But the real benefits will come through stronger nominal GDP growth rates, particularly once inflation levels revert back to their target rate of around 2%.”
Notes:
The August edition of PwC’s Global Economy Watch can be found at www.pwc.com/gew
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