The European Commission has improved – albeit marginally – its estimate on Greek growth this year to 2.4 percent in its Winter 2020 Economic Forecast, against 2.3 percent in its fall outlook. However, this figure continues to lag the government estimate of 2.8 percent and is much closer to that of the Bank of Greece (2.5 percent).
The improved forecast and the Commission’s generally positive projections released on Thursday have boosted the government’s hopes that the creditors will publish an improved debt sustainability analysis that will in turn facilitate negotiations aimed at attaining lower primary surpluses and greater fiscal leeway.
On Thursday Economy Commissioner Paolo Gentiloni dropped hints about a favorable decision by the Eurogroup in June regarding the use of eurozone central banks’ earnings from Greek bond holdings (SMP and ANFA profits) for investments. The Italian official said the Greek economy is heading in the right direction, that the report of the creditors on the fifth assessment will be positive and that it will open the way for the change of the SMP and ANFA earnings’ use.
On the other hand, the Commission kept its growth estimate for 2021 unchanged, at the mediocre level of 2 percent, just as it had done three months earlier.
Brussels says its forecasts rely on the assumption that Greece will continue its reform efforts. This remark is particularly important given that growth forecasts this year are to a great extent based on investment; in 2020 there won’t be the supporting force of public consumption that gave gross domestic product such a significant boost in 2019: The Commission’s report notes that the large increase in public consumption was the result of 2019 being an election year.
This year, though, the driving forces of growth will be investments and private consumption, as business sentiment and consumer confidence have reverted to pre-crisis levels and disposable income is growing. The prospects of exports are also positive, although their growth rate is projected to slow down.