OECD Economic Survey of Greece 2020 Presentation

OECD ECONOMIC SURVEY OF GREECE 2020

Recovering from COVID-19, boosting productivity, improving inclusiveness 22 July 2020, Athens and Paris www.oecd.org/economy/greece-economic-snapshot/

@OECDeconomy @OECD

Key messages Responding to the COVID-19 shock • Extend exceptional support for households and firms as needed without hampering reallocation of activity • Boost job-search and training policies to improve workforce skills and better match job-seekers with firms • Enhance access to family care to boost opportunities

Tackling long-standing challenges to improve public finances, productivity, job creation and well-being • Pursue plans to accelerate the digitalisation of the public administration to increase its efficiency and service quality • Allow small firms to grow and facilitate firms’ restructuring • End fossil fuel subsides to help clean urban air and reduce health risks 2

Greece was recovering from the great financial crisis before COVID-19 hit Real GDP per capita Thousand USD, PPP

45 Greece

OECD

40 35 30 25 20

3

Source: OECD Economic Outlook database.

Greece responded swiftly to COVID-19, limiting the death toll OECD COVID-19 Containment Policy Tracker indicator

COVID-19 deaths per million population

Scale 0-1 (most stringent) 1.0 0.9 0.8 0.7 0.6 0.5 0.4

Greece

OECD

350

OECD EU

250 200 150 100

0.2

50

0.0

OECD

300

0.3 0.1

Greece

0

Source: OECD country policy tracker https://www.oecd.org/coronavirus/country-policy-tracker/; John Hopkins University Center for System Sciences and Engineering, https://github.com/CSSEGISandData/COVID-19.

4

The shock has set back the recovery in confidence Consumer and business confidence % balance of positive versus negative answers, seasonally adjusted 60

Consumer

Industry

Services

40 20 0 -20 -40 -60 -80 -100

5

Source: Eurostat

Tourism is highly exposed to COVID-19 and is important for Greece’s exports and incomes International tourism receipts % of total exports, 2018 40 35 30 25 20 15 10

Source: OECD Economic Outlook databases; World Bank World Development Indicators database; and OECD calculations.

Indonesia

Argentina

Italy

France

South Africa

Austria

Estonia

United States

Philippines

Colombia

Australia

Spain

Turkey

MENA

New Zealand

Costa Rica

Thailand

Portugal

Iceland

GREECE

0

Croatia

5

The COVID-19 shock interrupts the recovery and creates exceptional uncertainty Real GDP Index, 2019Q4 = 100 105 100

Single-hit scenario

95 90 85 80 75

The “single-hit” scenario assumes that the pandemic is brought under control before the summer of 2020; the “double-hit” scenario assumes a second wave of contagion and lockdown measures late in 2020.

Source: OECD Economic Outlook database.

7

This is a marathon not a sprint: we are only in phase 2 of the pandemic crisis

Potential reversion if the number of Covid-19 cases increases above threshold levels

Phase 1: Containment Flattening the virus curve

Phase 2: Co-existing with Covid-19 Restarting activity while avoiding a second wave of Covid-19

Phase 3: Vaccine and/or treatment Robust, sustainable and inclusive recovery

Policy agility and flexibility Š OECD |

3

Responding to the COVID-19 shock

9

Targeting income support to reduce the risk of poverty Reduction in the poverty rate through social transfers 20

2019, % points, population under 65

18 16 14 12 10 8 6 4 2 0

Note: Population at risk of poverty, 50% of median income poverty line Source: Eurostat and OECD calculations

10

The shock sets back employment, adding urgency to revamping training and job-search programmes Spending per unemployed in active labour market programmes

Employment rates % of working age population, s.a.

35

% GDP per capita 90th percentile

30 25 20 15 10

10th percentile

5 % Shaded area

Greece

0

Greece

OECD average

Projections are shaded. The “single-hit” scenario is shown with a dashed line and assumes that the pandemic is brought under control before the summer of 2020; the “double-hit” scenario is shown with a dotted line assumes a second wave of contagion and lockdown measures late in 2020.

Source: OECD Main Economic Indicators and OECD calculations based on Economic Outlook 107.

11

COVID-19 heightens the need for access to childhood education and family care Enrollment rates in early childhood education, age 3 % 100

Care personnel per 1000 population 18 16

90 80

14

70

12

60

10

50

8

40

Source: OECD Health Statistics and Education Statistics databases.

GBR

ISR

ITA

ESP

BEL

OECD

IRL

PRT

HUN

0

CZE

0

AUT

2 SVN

10

GRC

4

CHE TUR GRC AUS POL AUT OECD CZE PRT HUN SVN NLD ITA IRL ESP ISR GBR

20

POL

6

30

12

Improving schools’ performance would help lift basic skills Mean PISA score, 15-year-old students

Share of adults with low basic skills %

500 490

Greece

OECD

480 40

470

35

Low literacy but solid numeracy Low numeracy but solid literacy Both low numeracy and literacy

30

460

25 20

450

15 10

Reading

Maths

Sciences

5 0

NLD CZE BEL AUT AUS OECD GBR POL IR L SVN GRC ESP IS R IT A

440

13

Source: OECD PISA and PIAAC databases.

Boosting digital skills opens opportunities in new types of work Share of individuals scoring well in problem-solving skills in technology-rich environments

% 60

Total

25-35 year olds

50 40 30 20

NLD

AUS

BEL

GBR

CZE

AUT

OECD

ISR

IRL

SVN

POL

GRC

0

TUR

10

14

Source: OECD (2019), How's Life in the Digital Age?

Returning banks to health to finance the recovery and provide liquidity Non-performing loans % of all loans 70 60 50

Total Consumer loans Residential loans Business loans

Non-performing loans net of provisions to total regulatory capital 129

% 90 75 60

40

20

30

10

15

0

0

ISR HUN SVN AUT GBR AUS ISL TUR POL CZE ESP BEL IRL NLD PRT ITA GRC

30

45

* 2019Q4 or latest available quarter Source: Bank of Greece; European Banking Authority (2020),"Risk Dashboard, Data as of Q4 2019" and IMF (2020), IMF Financial Soundness Indicators database.

15

Boosting public investment to upgrade infrastructure Quality of infrastructure Scale 1-7 (best)

6 5

90th percentile

4 3

10th percentile

2 1 0

16

Source: World Economic Forum (2019); OECD R&D Tax Incentive Indicators

Main recommendations to respond to the COVID-19 shock: Supporting people  Extend exceptional fiscal support measures, and the new short-time work scheme, as needed, while ensuring they do not hinder the reallocation of resources towards firms and sectors with better growth prospects.  Increase Guaranteed Minimum Income transfers, taper them more gradually as beneficiaries’ earn more and introduce in-work benefits for low-wage workers.  Employ more specialised counsellors and profiling tools in public employment services to significantly improve job search and training support, linking them better with private jobsearch agencies.  Roll-out compulsory pre-school for 4 year olds and expand access for younger children.  Boost policies to support families, prioritising expanded access to quality care for children and the elderly.  Progressively move the teacher workforce onto longer-term contracts that support and reward performance and avoid the rigidity of the existing permanent contracts.  Encourage tertiary education institutions to develop courses adapted to mature-age students’ professional needs and practical circumstances.  Improve quality assessment and certification of adult learning courses.

17

Main recommendations to respond to the COVID-19 shock: Investment for the recovery  Swiftly implement the Hercules scheme to dispose of non-performing loans from banks’ balance sheets.  Urgently design and implement a strategy to address the deferred tax credits and the bad loans that will remain on banks’ balance sheets.  Boost public investment to support growth and environmental sustainability, including in public transport, innovation and waste management, based on cost-benefit analysis.  Ensure pension spending does not crowd out on other, better-targeted, social programmes and public investment.

18

The COVID-19 shock amplifies Greece’s long-term challenges: reforms are key to tackling them

19

A broad reform programme would ensure a stronger, sustained recovery Trend real GDP per capita 2010 prices

Thousand EUR Baseline

Recommended reforms

Recommended reforms + faster population growth

Source: OECD calculations.

20

Reforms to strengthen the recovery through higher employment, investment and productivity % difference in level of GDP, relative to 2019 policies Policy goals 1

Policies to support employment and inclusiveness

2

Policies to improve the investment climate

3

Boost investment in infrastructure, knowledge and human capital

Policy actions Support employment by reducing the labour tax wedge.

Strengthen social protection policies to reduce inequality.

Support inclusive employment opportunities by raising inkind family spending.

Improving judicial and public administration efficiency continues to raise 'rule of law'. Corporate income tax rates are lowered to 24% from 2022.

Increase public investment spending to 4% of GDP by 2030. Use public incentives to boost R&D spending. Raise the quality of schooling, while expanding adults' participation in adult skill and training. Boost spending on active labour market policies.

Introduce all of above reforms.

Recommended reform package 5 Recommended reform Introduce all of above reforms and assume faster population growth. package with faster population growth 4

2025

2030

2040

2050

0.8

3.0

5.2

6.1

0.0

0.1

1.2

4.5

0.4

2.1

6.5

11.8

1.2

5.2

13.4

24.2

1.7

7.1

19.3

35.6

21

Source: OECD calculations

Faster growth is key to reducing the high public debt ratio Public debt, % of GDP Baseline

Recommended reforms

Recommended reforms, faster population growth 220

A. Single-hit scenario

220

200

200

180

180

160

160

140

140

120

120

100

100

80 00 05 10 15 20 25 30 35 40 45 50 20 20 2 0 2 0 20 20 20 2 0 20 20 2 0

B. Double-hit scenario

80 0 0 0 0 5 01 0 01 5 0 2 0 0 2 5 0 3 0 03 5 0 4 0 0 4 5 05 0 0 2 2 2 2 2 2 2 2 2 2 2

Note: The “single-hit” scenario assumes that the pandemic is brought under control before the summer of 2020; the “doublehit” scenario assumes a second wave of contagion and lockdown measures late in 2020.

Source: OECD calculations.

22

Sustaining growth will require allowing small firms to flourish Employment by business legal form % of total business employment, 2017 or latest

%

Sole proprietorship

Partnership, co-operatives, associations, etc.

Limited liability enterprise

23

Source: Eurostat

Reforms have eased product market restrictions but complex regulations tarnish the business environment Product market regulation indicators Index scale from most (0) to least (6) competition-friendly regulations, 2018 3.5 3.0

2013 5 lowest performing

2.5 2.0 1.5 1.0

5 best performing

0.5 0.0

24

Source: OECD 2018 PMR database and OECD calculations.

Reducing heavy regulation of professional services and retail trade would improve competitiveness Professional services and retail distribution 6

Index scale from most (0) to least (6) competition-friendly regulations, 2018 2013

5 lowest performing

5 4 3

5 best performing

2 1 0

25

Source: OECD 2018 PMR database and OECD calculations.

Faster access to justice to support firms’ restructuring and improve the business climate Time to resolve civil and commercial court cases Months

20 18 16 14 12 10 8 6 4 2 0

BEL

AUT

CZE

HUN

Source: EU (2019), EU Justice Scoreboard 2019.

DEU

POL

PRT

SVN

ESP

GRC

ITA

26

Better supporting R&D and innovation Gross domestic expenditure on R&D

Government support to business R&D activities

% of GDP, 2018

% of GDP, 2017

% 5

0.40

Indirect support through R&D tax incentives

0.35 4

Direct support

0.30 0.25

3

0.20 2

0.15 0.10

1

0.00

LVA LTU GRC ESP POL TUR CZE PRT JPN SVN NLD ITA HUN IRL ISL AUT BEL FRA

0

TUR IRL GRC POL ESP PRT ITA HUN CZE SVN ISL NOR OECD BEL DNK AUT ISR

0.05

Source: World Economic Forum (2019); OECD R&D Tax Incentive Indicators

27

Broadening the tax base and fighting evasion would enable tax rates to be cut VAT gap, % of VAT total tax liability 35 30 25 20 15 10 5 0

ESP

SVN

NLD

AUT

PRT

GBR

BEL

CZE

IRL

POL

HUN

ITA

Note: The VAT gap is the percentage difference between the total theoretical revenues assuming no evasion and with no reduced VAT rates and actual VAT revenues.

Source: EC (2019), 2019 Report on the VAT Gap.

GRC

28

Reducing the labour income tax wedge Labour income tax and contribution wedge, at 50% of the average wage, 2019 policies* Net tax and contributions as % of gross salary

50 45 40 35 30 25 20 15 10 5 0

G A A Ir U U N D O S P J T P It C G S S H ae ust elan .K. SA eth enm EC pai ortu apa urk ola aly zec erm lov ree ust wed un g D n ra er l h ga n ey n d an eni ce ria en ar lia d lan ark y l y a ds * Couple with one earner, without children.

Source: OECD Calculations, Taxing Wages database Isr

29

Ending fossil fuel subsidies would help clean urban air, reducing health risks Fossil fuel consumption subsidies % energy tax revenue, 2016

Population exposed to small particles

50 40

Greece

30 20

OECD

10 0 OECD Ireland Sweden Latvia Mexico Greece Belgium Finland Switzerland Australia Chile

0 10 20 30 40 50 60 70 80 90 100 % >35 µg/m³

25-35 µg/m³

15-25 µg/m³

10-15 µg/m³

0-10 µg/m³

31

Source: OECD Green Growth Indicators, Environment Statistics, and Exposure to Air Pollution databases.

Main recommendations to tackle long-standing challenges: Improving the public administration and simplifying regulation  Accelerate the codification of existing laws and regulations.  Lower product market regulation in professional services, especially for notaries, lawyers, civil engineers and architects, and retail distribution.  Pursue plans to accelerate the digitalisation of the public administration.  Unify insolvency proceedings, ensure a better balance between the rights of creditors and debtors, and accelerate enforcement of collateral.  Improve judicial efficiency through more training of staff and judges and using courts’ performance indicators.  Better communicate the availability and benefits of alternative dispute resolution mechanisms.

32

Main recommendations to tackle long-standing challenges: Tax reform to boost employment, investment and protect the environment  Consolidate agencies responsible for research and innovation policies.  Simplify access to R&D grants and tax incentives.  Continue to fight evasion and enlarge the tax base so as to lower statutory tax rates.  Reduce social insurance contribution rates, especially at low incomes, while aligning taxation across employment types.  Review tax variation across fuels to provide a consistent carbon price signal.  Review and abolish environmental harmful subsidies with outdated objectives or that are most harmful to the environment.  Adopt and implement a national air pollution control programme and improve the air quality monitoring system.

33

For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

http://www.oecd.org/economy/greece-economic-snapshot/ Follow us on twitter: OECD Economics OECD

34