‘Optimistic’ Finance Ministry scenario sees recession at 4.7 pct
The Finance Ministry’s estimates about the impact of the coronavirus on the Greek economy this year are at the optimistic end of the range of projections expressed to date and near those of the Bank of Greece, according to the Stability Program Athens submitted to the European Commission last Thursday.
The ministry’s baseline scenario provides for a recession of 4.7 percent, but there is also an adverse scenario for a 7.9 percent contraction. Bank of Greece Governor Yannis Stournaras made respective forecasts of 4 percent and 8 percent. Notably, both scenarios provide for a revival in 2021 that will offset all of this year’s losses, with a 5.1 to 8 percent rebound.
Other authorities, such as the International Monetary Fund, have a baseline scenario for a 10 percent recession, but the ministry does not agree, and notes that without the emergency measures the economy would have been headed for a 13.2 percent contraction this year, almost matching Morgan Stanley’s baseline scenario for shrinkage of 13.3 percent.
In its baseline scenario the program also projects a primary deficit of 1.9 percent of gross domestic product; in the adverse scenario this figure comes to 2.8 percent. In any case, the eurozone’s fiscal rules have been suspended for this year at least.
The ministry also appears quite optimistic regarding the effect of the pandemic on the debt, expecting a 12.2 percent of GDP rise to 188.8 percent of GDP, from 176.6 percent last year. For 2021, the ministry expects the debt to return to 176.8 percent of GDP. This is once again close to the Bank of Greece projections.
The Hellenic Fiscal Council showed its reservations about the program’s forecasts, noting the “particularly high degree of uncertainty” in the macroeconomic environment, and described the projection for a 4.7 percent recession this year as “particularly optimistic,” noting that most international organizations are less optimistic.
The HFC also issued a warning about salaries, saying there is a risk for their reduction to become permanent, which would undermine the recovery of the economy through reduced consumption.