Significant strengthening of primary surplus for 2024 and deceleration of inflation – What risks does it recognize
A growth rate of 2.9% next year with a de-escalation of inflation to 2.6% and a high primary surplus of 2.1% of GDP is foreseen in the 2024 budget, which is being submitted to Parliament today.
Specifically, the growth rate it will reach 2.4% (from 2.3% foreseen in the draft) for 2023 and will be 2.9% for 2024. At the same time, with inflation This year will close at 4.1% before falling to 2.6% in 2024
According to the budget forecasts of the 2024 KP, the primary surplus of the General Government (GG) in 2023 is estimated at 1.1% of GDP, at the same level as forecast in the Draft Plan and in the 2023 FY and improved against the target in the 2023 FP for a surplus of 0.7% of GDP. Compared to the result of 2022 (0.1% of GDP) the surplus of 1.1% of GDP for the current year is mainly due to the phasing out of measures to address the economic consequences of the energy crisis and to boost income, as and to the better than expected performance in tax revenues, especially from value added tax and social security contributions.
Alongside, the balance sheet deficity is expected to decline further to 1.1% of GDP almost the same as in the Draft and is slightly worse than in FY 2023 (0.8% of GDP) due to the upward revision of interest expenditure projections. These forecasts do not deviate from the forecasts of the European Commission and other international organizations. The improvement in the fiscal result is mainly attributed to the projected continuation of the growth dynamics of the economy (from 2.4% in 2023 to 2.9% in 2024) through the increase in disposable income, and therefore the expected increase in tax revenues and insurance contributions as well as the better performance of tax mechanisms due to the increase in electronic transactions and tax compliance. The reduction of the fiscal costs of interventions for the energy crisis, the reduction of state aid due to compulsory private insurance against natural disasters for medium and large enterprises and the exclusively targeted fiscal interventions to strengthen the income of the most vulnerable households contribute positively.
The amount of the debt of the CG as a percentage of GDP for 2023, is expected to be 160.3%, approximately at the same level as the 2024 MFP. Despite its high level (357 billion euros) the positive is its significantly downward trend as a percentage of GDP, with a decrease of around 11 percentage points compared to 2022. Factors contributing to this rapid de-escalation are the maintenance of strong nominal growth, the formation of a primary surplus (1.1 %) and the relatively stable interest burden as the largest part of it is held by official bodies (states and international organizations), with a low weighted average (indirect) interest rate and a long repayment period. For 2024, the CP 2024 highlights the tendency to stabilize the amount of the debt of the Greek Government (356 billion euros), with forecasts close to those of the Draft Plan 2024. Also impressive is the further reduction in debt as a percentage of GDP for 2024 as well, which it is expected to stand at 152.2%, maintaining a significant de-escalation of around 7 percentage points compared to the estimated level of 2023. In 2024, the favorable effect of both the indirect lending rate and the nominal growth rate on the debt-to-GDP ratio is expected to continue (snow-ball effect) as well as the formation of a significant primary surplus against 2023. It is worth noting that the expected reduction in inflation highlights the real value of the reduction in the debt path as a percentage of GDP. In dealing with both macroeconomic and fiscal challenges, a series of factors are drawn up, such as (a) the existence of a significant amount of cash reserves to meet the State’s liquidity needs, (b) the support of the economic growth dynamics from the funds of European programs, (c) the upgrades of the creditworthiness of the Greek bonds by the investment rating agencies, with two of them (DBRS and R&I) now classifying it in investment grade. The European Commission’s legislative proposal for improving the economic governance framework in the EU is also considered in this direction, which recognizes the need to ensure fiscal sustainability while simultaneously encouraging economic growth.
It is worth noting that the expected reduction in inflation highlights the true value of reducing the path of debt as percentages of GDP, the Council notes. In dealing with both macroeconomic and fiscal challenges, a series of factors are drawn up, such as (a) the existence of a significant amount of cash reserves to meet the State’s liquidity needs, (b) the support of the economic growth dynamics from the funds of European programs, (c) the upgrades of the creditworthiness of the Greek bonds by the investment rating agencies, with two of them (DBRS and R&I) now classifying it in investment grade.
Also, the above forecasts of KP 2024 subject to a degree of uncertainty, with possible mainly exogenous risks, such as: (a) the geopolitical uncertainty caused by the wars in Israel and Ukraine, which, among other things, could have a significant energy footprint, (b) the maintenance of ECB interest rates at the current high level for the entire duration of 2024 with negative consequences for investments and consumption and (c) the possible deepening of the recession in eurozone economies with negative effects on the Greek economy.
See HERE the budget text in detail
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