Bank of Greece Governor Yannis Stournaras revised on Tuesday the central bank’s baseline estimate about this year’s economic contraction in Greece from 5.8% to 7.5%, with the adverse scenario remaining at 9.4%, depending on pandemic-related developments.
Speaking at the online conference of the Ekyklos think tank, the central banker said that a common feature of all economies at the moment is the increase in households’ and enterprises’ savings, either due to an inability to spend because of restrictions or due to precaution.
This development, Stournaras explained, creates the conditions for long-term stagnation; this ought be averted at all costs, he stressed, through the appropriate use of fiscal and monetary policy and the right interventions in the credit system.
He went on to note that the performance of the Greek economy in the first half of the year, with a 7.9% economic contraction, was not as bad as the European Union average of 9%. He attributed that to the control of the pandemic during the first wave and possibly to the smaller impact of the lockdown compared to other countries.
This year’s primary budget deficit is estimated at 6% of gross domestic product, while the public debt may marginally exceed 200% of GDP without raising any midterm sustainability concerns.
As for next year’s growth, a rebound of 5.6% is projected per the BoG’s baseline scenario, with a key factor being the increase in savings, and when this will turn into consumer or investment expenditure. The effect of the resources from the Next Generation EU fund are estimated to come to 1.9% of GDP per year.
Liquidity conditions remain very positive in the credit sector with the rise in deposits. The problem lies in the volume of nonperforming loans, which amounted to 60 billion euros after the first half of the year, and there is a serious risk they will expand due to the moratorium on loan repayments.
The application of the Hercules asset protection scheme has had some very positive results, Stournaras acknowledged, but will not suffice as a supplementary solution is also needed.