EU funds to boost GDP by 2%

EU funds to boost GDP by 2%

The annual growth rate of the Greek economy can be accelerated through the European Commission’s Next Generation EU fund so as to reach up to 4% in the next decade, from below 2% in the last three years, argues a report by the Bank of Greece on the impact of the extraordinary recovery fund on the country’s gross domestic product.

The study, to which central banker Yannis Stournaras referred in a Bloomberg TV interview on Wenesday, estimates that the recovery fund’s 32 billion euros in grants and loans could increase the pace of growth by two percentage points for the next six years – i.e. from 2021 to 2026. “It will have a very positive effect on the economy,” argued Stournaras, adding that this will require an upward revision of the growth targets for the coming years.

He did add, however, that the challenge Greece is facing now is the reform of the state, so as to absorb the resources in the right way, and for the funds to have the biggest possible impact on growth: “Spending the money will not be enough,” he said. “We ought to combine investments with structural changes.”

The study takes for granted the equal spread of the grants and loans across the six-year period so that some €5-€5.5 billion is absorbed every year. After deducting the impact on the rise of imports, the net effect on the GDP is projected at €3.30-€3.63 billion per year. Therefore the increase to GDP will be between 1.89% and 2.07%, for a total rate of 12.1% across those six years.

Nevertheless the study is based on the optimum utilization of the resources: “In practice,” notes the report signed by Economic Analysis and Research Director Dimitris Malliaropoulos, “given the difficulties in the absorption of EU resources, the results will be smaller.”

The study also foresees an increase in the capital stock by 2.4% and productivity by 1.4%. “These resources will finance investments, so we are expecting an impact on potential growth too,” the report added.

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