Reviving investment is key for growth

 More steps needed to ensure money starts pouring into the economy and stabilization turns into recovery

By Dimitris Kontogiannis

The rebalancing of the Greek economy has relied on recessionary policies bearing fruit but these cannot continue on social and political grounds. Government officials and others have justly argued that the economy should rely on exports of goods and services and investment spending to recover from its six-year slump and achieve high growth rates in the future. However, investments continue to disappoint, fanning concerns about the sustainability of GDP growth rates in the medium-to-long term.

The relatively recent downward revision of the recession in the first quarter of 2014 by the Hellenic Statistical Authority (ELSTAT) was welcomed by state officials and market participants because it was in line with official projections of 0.6 percent in real GDP growth rate. Some analysts argue the provisional 0.9 percent year-on-year decline in the first quarter points to a higher-than-anticipated 1 percent GDP growth rate for the whole year. However, the performance of the individual components of GDP is cause for concern in our view.

According to the provisional GDP figures released by ELSTAT, exports of goods and services rose 5.4 percent in the January-March period compared to the same period a year ago, imports increased by 2.2 percent and consumption spending by 0.8 percent. On the other hand, the big laggard was gross fixed capital formation which shrank by 7.9 percent year-on-year to 5.1 billion euros. The World Bank defines gross fixed capital formation as outlays on additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed assets include land improvements (fences, ditches...