State-sponsored growth is slowing down
The sharp slowdown in Greece’s gross domestic product in the third quarter came as a surprise. In the golden quarter of tourism, the rate of economic growth fell to 2.8% from 7.9% in the first quarter and 7.1% in the second quarter. As a result, the growth rate in the first nine months of the year is limited to 5.9%.
Considering that GDP is expected to drop in the fourth quarter (this is foreseen by leading indicators and international developments), the annual growth will be noticeably smaller than the 5.6% written in the government budget. How much smaller? If GDP does not decrease in the last quarter but remains the same as in the third, annual growth will be around 5%. If it is reduced, it may drop below that threshold.
All this if Greece’s statistics service ELSTAT’s calculations are correct. ELSTAT said that the slowdown in the rate of economic growth was due to the removal of significantly increased energy subsidies. First of all, subsidies are always removed. What it didn’t say, though, is that the subsidies had already had an incremental effect on GDP: Without them, consumption would have been a few billion euros lower and GDP growth would have been less than 2.8%. Of what ELSTAT said, I focus on three elements and one finding as the most important.
The first element is that while imports are at 5.2% in real prices, exports are stuck at 0.5%. The second, while exports are stagnant, in current prices they jumped to 36.9%. This suggests there have been huge price hikes that have worsened the competitiveness of our tourism product – if this is true, we will see it next year. The third is that the sharp slowdown of growth suggests that state-sponsored growth, the cash injections into GDP with multi-billion-euro horizontal subsidies of a clientelistic nature, are exhausting their momentum. The show is ending.
But not before the elections. Until then, campaigning for votes takes precedence. Some examples are the announced 600-euro bonus to all uniformed employees – instead of a selective bonus to those who serve honorably and have shown high performance – because everyone votes; the additional travel allowances for all military and civilian personnel of the Defense Ministry; and, above all, the great achievement of the evaluation in the public sector: It starts strongly with 50 million euros, giving bonuses to more than 50,000 civil servants.
It is certain that the next government will envy the luck of the current one. It will have to start cutting spending and clean up the overspending that the current one is indulging in, and will have to do so in difficult circumstances, with a very limited GDP increase (the Ministry of Finance is forecasting 1.8%, versus 1% by the European Commission). If the hunt for votes was not the driver of developments for this government, the Finance Ministry should have already set the goal of achieving even a small primary surplus, of the order of 0.5% to 1% of GDP, in 2022.
With prudent management, this goal could be relatively easily achieved, which would be a valuable aid in the difficult endeavor ahead in 2023. Prudence, however, does not seem to be in the government’s agenda. It is as if it has been exhausted by the wiretapping scandal.
