Parliament Budget Office: Gov't package of favourable measures within projected fiscal space in 2019

Developments in the Greek economy are positive and fiscal stability is sustainable, as the impact of 0.55 pct of GPD from a package of favourable measures announced by the government moves within the projected fiscal space for 2019, Frangiskos Koutentakis, head of the State Budget Office in Parliament said on Wednesday.

Presenting the first quarter report of the year, Koutentakis said the Greek economy was growing and unemployment was dropping, while he and estimated that GDP growth rate will exceed 2.0 pct in 2019.

Part of his introduction to the report follows:

"According to the available data, the Greek economy has maintained its positive momentum. Growth in 2018 was at the Eurozone average, with a large contribution from exports but a negative change in total investment. Unemployment is falling, employment and wages are rising, inflation is on the rise, but the current account deficit has widened. The short-term indicators for 2019 show a mixed picture, with a deterioration in the economic climate indicator, but an improvement in the Responsible Procurement Index (PMI).

"The official projections for growth rate in 2019 range from 1.9% (Bank of Greece) to 2.4% (International Monetary Fund). The major risks to the Greek economy arise mainly from abroad, particularly the slowdown in the Eurozone, the wider financial instability and the escalation of the US and Chinese trade dispute.

"In fiscal terms, our country recorded the highest primary surplus among Eurozone countries (4.4% of GDP) and the fifth highest and the fifth highest total surplus (1.1% of GDP, including government debt), confirming the Greek economy is generating high and sustainable surpluses. This adds additional credibility to economic policy and financial management and is reflected in the decline in Greek government bond yields and the credit rating upgrade of Greece by the DBRS rating agency. The Stability Program submitted by the country to the EU provides for the maintenance of primary and global surpluses for the coming years as well as the existence of a fiscal space of 0.6% of GDP for 2019.

"These forecasts are de facto revised following the adoption of a series of expansive measures including the reduction of VAT on processed food, catering, electricity and gas, the reform of widows' pensions, the payment of a special retirement allowance (13th pension) and the offering flexibility in repayment of debts to the tax authorities, insurance funds and local government up to 120 installments.

"The overall impact of the measures for 2019, according to State Treasury reports, is close to 0.55% of GDP and can be covered by the projected budget. It is worth mentioning that all fiscal interventions, both expansive and restrictive, have redistributive effects as they affect differently iindividual groups of the population. Given that the budget space is by definition finite, each government chooses how to allocate the benefit or burden among the social groups.

"The recent expansionary measures primarily favor retirees and traders in goods markets that are subject to VAT reductions. Especially for the second, the distribution of the benefit between consumers and producers will depend on the impact on the final prices of goods, which in turn depends on the conditions prevailing in each market. Theoretically, the more the price is reduced, the greater the benefit will be to consumers, on the contrary, if the prices are not reduced, the benefit will come to the producers.

"Finally, it is to be noted that expansionary measures are expected to have a positive impact on private consumption which, in the In fiscal terms, our country recorded the highest primary surplus among Eurozone countries (4.4% of GDP) and the fifth highest total surplus (1.1% of GDP, including government debt) confirming the Greek economy to generate high and sustainable surpluses. This adds additional credibility to economic policy and financial management and is reflected in the decline in Greek government bond yields and the credit enhancement of Greece by the DBRS rating agency".