Friday November 28, 2014 Search
Weather | Athens
16o C
10o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
GDP potential can bring market return

 If focus remains firmly on reducing the debt, it will only serve to delay confidence restoration
The output gap, that is the difference between the actual gross domestic product and the potential GDP, is seen widening to minus 10 percent of potential output in 2013 from minus 7.3 percent last year.

By Dimitris Kontogiannis

Buoyed by improved market sentiment and the execution of the 2012 budget, Greek and foreign officials hope the country may be able to return to the markets next year or in early 2015, in time to fill a financing gap of up to 9.5 billion euros during 2015-16, according to the International Monetary Fund. However, these hopes may be dashed if they cannot get the Greek economy back on the path to growth.

Charles Dallara, the managing director of Washington-based bank lobby group the Institute of International Finance (IIF), said last week Greece could return to the markets as soon as late 2014 or early 2015. He was speaking on the sidelines of the World Economic Forum in Davos.

He is not alone. A few government officials in Athens have privately been expressing the opinion that the country may be able to borrow from international capital markets at some point next year or in 2015 at the latest.

They are pinning their hopes on a bigger-than-expected general government primary surplus, a further reduction in the likelihood of a Greek exit from the euro, positive market sentiment for risky assets internationally and perhaps more debt relief initiatives by the European Union to render the public debt sustainable.

Readers are reminded that the country’s debt-to-GDP ratio is projected at 128 percent in 2020 after the interventions decided by the Eurogroup last November. The EU is committed to taking further action to bring the debt ratio down to 124 percent if Greece sticks to the economic adjustment program.

A good deal of the de-escalation of the debt ratio relies on the assumption revenues will be broadly equal to primary expenditures, which exclude interest expenses, in 2013 but exceed them to produce a primary surplus of 1.5 percent of GDP in 2014. The primary surplus is seen rising to 3 percent of GDP in 2015 and 4.5 percent in 2016, which generally speaking is the steady state target for the de-escalation of the debt ratio to 124 percent in 2020.

Finance Ministry and other government officials, encouraged by preliminary data showing the 2012 budget attained the revised targets or even did better, feel confident the primary budget outcome will be better than envisaged this year. They think the country has taken more front-loading measures such as spending cuts and tax hikes than needed to bring the primary budget balance to zero even after factoring in a bigger than the predicted 4.2-4.5 percent contraction of the GDP in 2013.

Some estimate the primary budget may show a surplus as high as 1 percent of GDP or 1.8 billion euro in 2013. If true, this will enable them to use 70 percent of it for purposes other than paying interest and principal on the public debt, boosting economic sentiment.

The emphasis on producing a primary surplus rests on the assumption it could both help suppress the debt ratio and slowly rejuvenate demand for Greek bonds at a time when there is a growing appetite for high yielders – Portugal’s successful sale of five-year bonds recently being a case in point.

On the other hand, Greece will have to produce consistent data, showing a primary surplus has been attained for a number of quarters, but it is too early to predict whether investor appetite will continue to be strong during that period. Moreover, it is hard to see how traditional fixed-income investors who have suffered huge losses during the Greek sovereign debt restructuring – known as PSI – will return, even if markets have a short memory.

Some officials hope Greece could also capitalize on a boost to market sentiment by the EU adopting more debt relief measures, namely a drastic reduction of the interest rate charged on European Financial Stability Facility (EFSF) loans. This in turn assumes the coalition government will be able to deliver on its promises to creditors and implement the adjustment program.

All these hopes are not groundless. However, they do not focus enough on how to get the Greek economy growing again unless, of course, one assumes the latter will be the result of the improved fiscal outcome and market psychology. This is key to the success of the economic adjustment program and the country’s return to the international capital markets in the next couple of years.

With the fiscal austerity program firmly in place and limited credit available to the private sector ahead, the prospects are not bright, to say the least. This is without counting the possible impact of a bigger-than-estimated fiscal multiplier on economic activity and an external environment for Greek exports which is projected to be worse than last year.

Of course, an economy cannot shrink for ever and there is always a bottom to any recession.

The output gap, which is the difference between the actual GDP and the potential GDP, is seen widening to minus 10 percent of potential output in 2013 from minus 7.3 percent last year, according to the latest IMF review.

Others estimate the output gap at minus 13 percent of potential GDP this year. The fact the actual GDP is below the level of output the economy could achieve at full capacity means many resources are being underemployed. The latter cannot be taken lightly because it may have serious political and social repercussions down the road.

In this regard, Greece’s return to the markets in 2014 or early 2015 will be mainly determined by the battle between the negative forces of fiscal retrenchment and the credit crunch on one hand and the natural tendency for this large output gap to close on the other. As long as the focus is not on how to get the economy growing but on fiddling with the debt ratio, Greece’s return to the markets is likely to be burdened by delays.

ekathimerini.com , Sunday Jan 27, 2013 (21:31)  
Q3 growth was bigger than thought
Who will pay for the state’s ADMIE stake?
Christmas budgets slashed due to higher taxes, healthcare costs
Finance Ministry inundated with applications for debt settlement
Venizelos extends invite to Turkey at start of visit
Foreign Minister Evangelos Venizelos arrived in Ankara Friday night for two days of talks. Ahead of his visit he sought to make it clear that Greece is prepared to discuss maritime issues wi...
Vatopedi trial for 14 suspects
The Supreme Court decided Friday that 14 people should stand trial for the notorious property swap between the Vatopedi Monastery and the state six years ago. Those who will face charges of ...
Inside News
SOCCER
PAOK is one win from Europa League´s last 32
A late brace by Stefanos Athanasiadis gifted PAOK a precious win at Dynamo Minsk on Thursday, meaning that the Thessaloniki team is one win away from graduating from the group stage of the E...
BASKETBALL
First defeat for Olympiakos in Euroleague
Olympiakos suffered its first Euroleague loss of the season going down 89-70 at Laboral Kutxa on Thursday, although the Greek team remains the favorite to clinch the top spot in its pool. Th...
Inside Sports
COMMENTARY
Change of US president won´t mean change of foreign policy
Americans have again voted for change in Washington as opposition Republicans take control of both houses of the US Congress. As attention now turns to the 2016 presidential race, it's time ...
COMMENTARY
The presidential election paradox
A few days ago, speaking with a visiting colleague who neither works in Europe nor covers events here, I suddenly felt how much we Greeks take for granted some things that should have worrie...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Venizelos extends invite to Turkey at start of visit
2. Vatopedi trial for 14 suspects
3. New proposals on way to troika
4. Cabbie who carried shooter claims he was threatened
5. Gov´t urged to allow Syrian refugees to move on
6. Man accused by MP denies kickback claims, ND links
more news
Today
This Week
1. Change of US president won't mean change of foreign policy
2. Greek economy expands 0.7 pct q/q in Q3
3. Child molester suspect photo released by police
4. Lebanese FM: Cyprus may be jihadi transit point
5. Athens water supply 9-month profit falls 45 pct on lower charges
6. Armed man arrested on Thessaloniki campus
Today
This Week
1. Give Greece a chance
2. Extremism from a bygone era
3. Scientists expand excavation of ancient Amphipolis
4. Greece paralyzed by major strike, flights cancelled
5. Piraeus nightclub shooting leaves 3 seriously injured
6. Cosco’s Greek unit adds multinational rail-freight client
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.