The Bank of Greece’s baseline scenario for 2020 is zero growth, compared with its previous estimate for 2.4 percent, according to a report released by Governor Yannis Stournaras on Friday.
It estimates that the coronavirus will also hurt the state budget, reducing the primary surplus “by several percentage points of gross domestic product from the original target for 3.5 percent, although at the moment it is exceptionally difficult to make any precise forecast.”
Stournaras’ report, presented on Friday at the central bank’s general meeting, is dominated by the economic effects of the Covid-19 pandemic. However, he gave a prospect of hope by giving his report the title “From the Crisis to the Pandemic and to Growth.”
The former finance minister said that “the growth rate of the economy is expected to slow considerably in 2020, given the effects of the expansion of the coronavirus. For the time being, these consequences cannot be quantified with precision.” He added that, at this stage, the baseline scenario provides for zero growth, as there will be a “significant negative impact on the economy in the first two quarters of 2020, which will be partially offset in the latter two quarters.” This scenario takes into account the offsetting measures already taken.
Just 15 days ago sources from the central bank had said its agencies expected growth to drop to 2 percent according to the adverse scenario. Obviously the picture has changed dramatically since then. On Thursday Finance Minister Christos Staikouras also forecast zero growth.
On a fiscal level, the forecast that the primary surplus will come in far below the 3.5 percent of GDP target is, per the BoG governor’s report, due to the increase in expenditure to tackle the epidemic, support for enterprises and the maintenance of employment, and the negative effects on revenues, due to the slowdown in growth.
“The biggest challenge for fiscal policy today, changing the entire landscape,” wrote Stournaras, “is to make the most of all available options to secure the funding of expenditure for tackling the coronavirus and minimize the negative impact on the economy, with the least possible effect on debt sustainability.”