The Greek economy is recovering rapidly, as noted in the quarterly magazine of the Center for Planning and Economic Research (KEPE) “Economic Developments”, which is available online on the center’s website (issue 46 – October 2021). But, as mentioned, accuracy creates uncertainty.
According to the Center’s estimate, after a dramatic recession of 9.0% (according to the revised data of ELSTAT) in 2020, the Greek economy shows a significant recovery “type V” and not U. In fact, it is stressed, what we see is a verification of spring theory. And it is not just the data of the last quarter that verifies this estimate. The estimates of foreign and domestic companies and investment banks that raise the growth bar for 2021 around 8%, much higher than the revised 6.1% of the government: At 7.5% the National Bank, at 7, 8% UBS, Oxford Analytics and Moody’s Analytics, 7.9% KEPE, 8% IOBE, 8.5% Capital Economics and 8.6% Scope Ratings. It is now clear that government support of around € 40 billion has saved the economy’s productive base, boosted deposits significantly and kept unemployment at 13.9% in August 2021, the lowest level in 11 years.
Fixed capital investments (11.8%), public consumption (7.0%), exports of goods and services (5.8%) and private consumption (4, 4) contributed to the acceleration of the growth rate. 7%) in the recorded course of the semi-annual growth of 2021.
Accuracy: The biggest risk for the recovery of the Greek economy
As KEPE notes, in recent months there has been an increase in accuracy in almost all goods. The increases are particularly noticeable in energy (gas, electricity, oil) in transport and raw materials. For example, the price of oil rose to about $ 84 per barrel, more than four times higher than that recorded in the midst of a pandemic (about $ 20 per barrel in April 2020). Electrical items have increased by up to 60% since the beginning of the year. The cost of a container has jumped from 1,500 euros last year to 12,000 euros this year. Rising commodity prices, especially in energy, in recent months may put a significant strain on family budgets, ultimately squeezing household purchasing power.
The Greek government, in an effort to curb the effects of price increases on households, has already taken measures to support society against the negative effects of the energy crisis, such as increasing the heating allowance (from 36% for households without children to 68% for households with three children), but also in broadening the eligibility criteria, in order to cover a larger percentage of households (over one million, compared to about 707 thousand households in 2020).
At the same time, as the government had announced at the Thessaloniki International Fair, a subsidy will be given to household electricity bills, while a similar policy is expected to be applied to gas consumption bills. The budget cost of subsidies for electricity bills is expected to reach € 326 million, while the cost of the heating allowance, respectively, is € 168 million. At the same time, additional policies were announced at the TIF, which concern -mainly- the reduction of taxation, in order to support incomes, but also businesses (eg extension of the exemption from the special solidarity contribution in 2022, reduction of insurance contributions in the private sector, reduction of corporate tax from 24% to 22%, extension of the application of reduced VAT rates to transport, coffee and non-alcoholic beverages, to cinemas and the tourist package by June 2022, etc. ).
Accuracy creates uncertainty for businesses and households but also a big question: Is the return of inflation a temporary phenomenon due to the faster adjustment of demand relative to supply to a post-pandemic normality or is it a structural change with more permanent characteristics that linked to the pursuing expansionary fiscal and monetary policy at international level?
A careful analysis of the data worldwide leads to the conclusion that the inflationary pressures, which are observed internationally, are due to many different conjunctural factors, all of which, however, appeared in the current situation, which will gradually decline. E.g. the sharp drop in the price level last year due to the pandemic, combined with rising prices this year, the dynamic warming of economies after the lifting of restrictive measures combined with the creation of stocks by companies to avoid future shortages but and Christmas, the imbalance between supply and demand in some sectors due to disruption in the global supply chain, but also due to climate change (eg very hot summer and apnea in Europe, fires in Siberia, increased demand for air conditioners in Asia). Added to this is the (hasty?) Change in the energy mix in the European Union, combined with the intention to move to a productive model based more on Renewables and less on traditional Energy Sources (eg lignite, coal and oil), which led to an increase in the price of carbon dioxide emission allowances paid by energy producers, resulting in an increase in production costs, which is then passed on to both the wholesale and retail markets.
Will the current recovery course take on the characteristics of sustainable development?
Once the risk of accuracy is overcome, the goal is for the recovery – which is taking place today – to acquire characteristics of sustainable development, lasting, especially in the light of the country’s exit from enhanced supervision in 2023, and the pressing need to recover faster rather than later the investment tier. The three conditions for this to happen are the following:
First, the effective absorption of Recovery Fund resources and the continuation of reforms.
Regarding the reforms, it is underlined that Greece has made significant progress in recent years, implementing structural reforms that can strengthen the medium-term growth prospects of the economy. There are, however, still some significant obstacles to achieving sustainable and strong growth.
The intensification of reforms, especially in the fields of Education, Justice and Public Administration, will increase the productivity of capital by making investments more efficient. Specifically, it states: “The government is not alone in this effort. Having with her a large section of society calling for change, she is called upon not to deny her expectations. Millions of parents are interested in the school results their children send, and thousands of teachers, despite the demands of their union leaders, would like to know the preferences of parents and children, the consumers of the service they provide. Millions of citizens and hundreds of investors are interested in getting things done quickly without unnecessary travel and wasteful spending. It is necessary a universal application of the evaluation in the State but also a fundamental change of the evaluation system of the judges that will be based on their performance and only on them “.
– Secondly, restoring the fiscal balance. It is stressed that there is no room for easing the longer-term targets for primary surpluses, which are a prerequisite for financing needs for the next decade to remain manageable.
In addition, it is pointed out that tax evasion in Greece has always been great, as has the informal economy. However, in recent years its level, especially in the field of VAT, has increased. Probably this is due to the high rates but also to the reduction of incomes that push the market, but also the citizens themselves, to “black” transactions.
Thirdly, ensuring the liquidity of banks. As noted, at present, banks have sufficient liquidity and capital reserves that allow them to lend to the real economy. However, the percentage of Non-performing Loans in total loans remains the highest in the euro area and is a deterrent to credit expansion, especially to small businesses, which are characterized by a higher credit risk.
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