December 16, 2016 / 10:09 AM / 7 months ago

Greek cenbank sees economy expanding in 2017, urges end to standoff over bonus pension

A man walks past the headquarters of the Central Bank of Greece in Athens, Greece, November 8, 2016.Alkis Konstantinidis

ATHENS (Reuters) - The Greek economy will expand by 2.5 percent next year after growing just 0.1 percent this year, but the country must end a standoff with its lenders over reforms to maintain the positive momentum, the central bank said on Friday.

In its interim monetary policy report, the Bank of Greece raised its growth estimate for this year after a positive performance in the third quarter. It had forecast in June that output would contract by 0.3 percent this year.

Greece is in a standoff with its lenders after the country's leftist-led government announced a one-off Christmas bonus for pensioners.

Taking the view that the measure goes against the country's bailout program agreed last summer - its third since 2010 - the euro zone's financing arm on Wednesday froze a set of short-term debt relief measures for Athens that were signed off on just last week.

Greece's parliament nevertheless on Thursday approved the plans to hand out the bonus.

The central bank on Friday called for "pragmatism and flexibility" so that a review of Greece's progress on its bailout-mandated reforms can be concluded as soon as possible.

"There is not much time left, in the light of upcoming national elections in a number of euro area countries," the bank said in the report.

Greece wants to wrap up the review by early next year so that it can be included in the European Central Bank's asset-buying program and tap international debt markets before its current financing from foreign lenders expires in 2018.

The central bank said the country had made headway in implementing its bailout reforms. "Under no circumstances should this progress be halted," it said.

It reiterated its view that returning to sustainable growth would be easier if Greece's lenders agreed to lower their target for its primary budget surplus, excluding debt-servicing costs, from 2018 onwards to 2.0 percent from 3.5 percent.

Additional reporting by Theodora Arvanitidou; Editing by Hugh Lawson

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