Two scenarios on recession in 2020

Two scenarios on recession in 2020

The government will include two scenarios on the economic contraction projected for this year in the Stability Program for 2020-21 to be submitted to the European Commission on Thursday in the context of the European Semester.

The baseline scenario will provide for a V-shaped recovery, estimating that the economy will contract by 4.7 percent this year and rebound by 5 percent in 2021, while the adverse scenario will take this year’s contraction to 8-9 percent, according to sources.

Nevertheless, there will be a single fiscal scenario in the plan providing for a primary deficit of 2.5-3.5 percent of GDP according to the statistical rules applying to all eurozone member-states – that are different to those used for the Greek Stability Program.

Finance Ministry sources say that after the application of the adjustments the Eurogroup has allowed due to the coronavirus (with the exemption of pandemic-related expenditure), the result will again be a primary surplus of 3.5 percent of GDP, which is the program’s precise target. However, in this instance it does not really matter thanks to the flexibility granted by the Eurogroup and the suspension of fiscal rules, at least for this year.

In the program the government will only describe the measures it has taken to date, and not any future ones. As competent officials note, this is an intermediary stability program that will be revised when next year’s budget is submitted, or even earlier. The course of tourism will play a considerable part, the same sources add. Notably, at this stage there will be no submission of a four-year Midterm Fiscal Plan as was originally scheduled.

The Finance Ministry’s forecasts included in the Stability Program are close to those of the Bank of Greece: As its governor, Yannis Stournaras, has said, the central bank’s baseline scenario is for a 4 percent recession in 2020 and its adverse one for an 8 percent contraction, the latter being based on the extension of the lockdown to a third month.

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