The IMF admitted for a second time in almost as many months that it had misjudged the effect of austerity on a country that has been mired in recession for six years.
In June, the IMF said that it had miscalculated the so-called “fiscal multiplier”, or effect that adding or subtracting a euro of government spending would have on the Greek economy.
However, in a new working paper, the Fund said the errors were less closely linked to fiscal multipliers than first thought. “A closer look … suggests that GDP forecast errors for Greece were due more to over-optimism on potential growth than to underestimating fiscal multipliers,” it said.
The report, which examines the impact of IMF-backed economic reform programs in several countries, said the collapse in Greek output reflected “weaker than anticipated program implementation and payoffs from reform, political and social dislocation”.
Meanwhile, German finance minister Wolfgang Schaeuble repeated his warning that Greece would need a third bail-out, but said that any fresh aid would not involve another debt writedown.
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