Rating agency Fitch today said the crisis in Greece poses a risk to the economic recovery in Eurozone.
"Our baseline forecast is for Eurozone GDP growth to strengthen from 0.9 per cent in 2014 to around 1.6 per cent in 2015-2017, but the risk of a Greece exit from the Eurozone has intensified following the breakdown in talks between Greece and its creditors and the announcement of a referendum on the bailout proposals, to be held on July 5. This poses a risk to economic recovery," Fitch said.
In its Global Economic Outlook report released today, Fitch said a weaker exchange rate, low oil prices, strengthening confidence, quantitative easing and improved credit conditions support growth.
"Nevertheless high debt levels and structural weaknesses will constrain the recovery for a prolonged period and the growth potential is weak compared with other major advanced economies (MAEs)," Fitch said.
There have been fears of cash-strapped Greece missing its debt repayment deadline. The situation may prompt Greece's European partners to shut the door on extending a credit lifeline after the country's surprise move to hold a referendum on bailout terms.
"The combination of a modest pick-up in headline inflation, strengthening recovery and stabilisation of longer term inflation expectations have led to a moderation of deflation risks, although inflation will likely remain below the ECB's target until 2017 and deflation risks could re-intensify in case of adverse shocks, such as a disorderly Greek exit," Fitch said.
