The head of the Budget Office, Frangiskos Koutentakis, was in favor of taking targeted and not horizontal measures to support society, during the presentation of the Report on the course of the economy in the 4th quarter of 2021.
As he characteristically stressed, horizontal measures in particular should not be the main goal on the subject of fuel This is because, as he noted, people who do not need it would be favored, while at the same time the budget is significantly burdened, without being sure that the measures will bring the desired result for the society.
He also said that there was a greater need for support measures for electricity, gas and heating oil and fuel follows.
Regarding the course of the economy, the report states that “emergency conditions create significant challenges for our country. The Bureau of Budget forecasts for 2022 growth were at 3.58% before the start of the Russian invasion of Ukraine and are limited to 2.75% in the mild scenario and 2.21% in the unfavorable scenario depending on the extent of the disturbances in international energy and food prices as well as the deteriorating climate of confidence and the turmoil in financial markets. However, the final impact will depend on the duration of the war, its outcome and the reaction of monetary and fiscal policy at European level. “
In terms of effects of the war It is noted that they are expected to lead to strong fiscal pressures both in terms of revenue (due to economic slowdown) and in terms of expenditure (pressure to cover energy costs). However, it should be noted that, even if it is decided at European level to extend the general escape clause of the Stability and Growth Pact to 2023 or a possible exemption of defense spending from European fiscal rules, our country’s fiscal potential is limited. Unprecedented expansionist policies to tackle the pandemic have caused a cumulative € 30 billion fiscal deterioration. The combination of reduced tax revenues and increased costs, although necessary in emergencies, is not sustainable in the medium term. “The level of the general government deficit and public debt combined with the lack of investment grade make Greek government bonds particularly vulnerable to possible disruptions in the financial markets, despite support from the ECB.”
It is also stressed that “based on the above, we consider that restoring the fiscal balance is a major priority. Therefore, in terms of fiscal policy, any expansionary interventions should be temporary and limited to the absorption of increased energy costs targeting vulnerable groups. Instead, horizontal interventions as well as permanent fiscal easing measures unrelated to energy costs should be avoided. We understand that the strong political polarization that prevails does not encourage fiscal responsibility. But the surrender of budget bidding does not make less urgent the need to prepare for challenges of unknown duration and outcome. The country’s fiscal security requires a minimal political consensus on the main axes of strategy that will strengthen the climate of economic confidence, improve the sense of security of citizens, and consequently make more manageable any negative effects on the Greek economy. “Otherwise, if our country is led to a new increase in public debt, it risks facing unpleasant fiscal situations.”
Finally, the report mentions and in the course of the economy in 2021 and it is noted “the growth rate of the greek economy in 2021 amounted to 8.3% from -9.0% in 2020 and real GDP is marginally lower than the level of 2019 (181 billion euros compared to 183.6 billion euros in fixed prices 2015). The unemployment rate for December 2021 (12.8%) is significantly lower than the previous year (15.5%) while the current account deficit (10.6 billion euros) remains at nominal terms close to its level 2020 but significantly higher than 2019 (2.7 billion euros). Inflation based on the harmonized index of consumer prices continues to increase (6.3% in February 2022) due to large increases in housing prices (26.3%), transport (8.8%) and food and non-food items. alcoholic beverages (7.2%).
The annual budget data for 2022 show a significant improvement compared to 2021 of the order of 2.2 billion euros. Subject to possible adjustments by ELSTAT, we expect a significantly smaller primary deficit from the budget estimate (€ 12.8 billion or 7.3% of GDP in terms of enhanced supervision) due to the additional improvement from higher GDP to in relation to the budget forecast (177.6 billion). Yields on Greek government bonds have been on the rise since November 2021, as in most European countries, but this seems to be limited from February 2022. However, the spread on other European securities is widening.
From the middle of last year the international economy has entered a phase of intense inflationary pressures and particularly increased uncertainty. Add to this the Russian invasion of Ukraine, which has dramatic consequences, such as human losses and damage to Ukraine’s infrastructure and production capacity. Inevitably, the war in Ukraine has led to upheavals in established geopolitical balances as well as serious global economic upheavals. In particular, rising prices for energy, food and other commodities will boost inflationary pressures and slow growth. “The problems will be more acute in Europe, where the massive influx of refugees, the revision of defense strategies and the attempt to reduce Russia’s dependence on natural gas will put an additional burden on state budgets.”
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