Economic growth in Greece: the cost of a failed adjustment programme

Abstract

This article aims to assess the cost of failure of Greece's ‘First Economic Adjustment Programme’, in terms of potential Gross Domestic Product (GDP) growth. In particular, real GDP trends are estimated through filtering techniques and compared with those had the first programme been successful. The trend growth rate of GDP is estimated at −3.84% (2012Q2), against −2.21% if the targets and forecasts of the first adjustment programme had been realized. The results indicate that the failure of the first programme has had a signifying adverse effect on the country's future growth prospects as current GDP dynamics are far worse than those forecasted in the first programme.

Keywords:

• economic growth
• Greek economy
• filtering techniques
• GDP growth trends

JEL Classification:

• O40
• O47

Notes

¹ For an overview of these filters, see Gordon (2003).

² Data provided on an annual basis were converted to quarterly with Eviews (quadratic match sum or average whether appropriate).

³ The trends estimated with the HP filter have been derived with a smoothing parameter λ equal to 1600.

⁴ Similar estimates have been presented by Kiriakidis and Kargas (2013), showing that the recession for 2012 in Greece would be between 9% and 10%.