In the midst of the international banking crisis, the Ministry of Finance is reviewing the rate upwards development this year to 2.3% from 1.8% of the budget forecast.

The rapid decline in natural gas prices significantly limits energy subsidies, boosting the economy, which is estimated to be 2-3 billion euros higher in absolute terms this year, the ministry said.

In fact, the executives in question are stating that if there had been no banking crisis, the GDP growth estimate would have been above 2.3%. “This uncertainty makes us conservative in our forecasts,” they note.

This is because banking shocks are prompting financial institutions to limit risk-taking, at least until stability returns, to protect their balance sheets. Consequently, credit conditions for the real economy will be difficult, even temporarily, not only in Greece, but on both sides of the Atlantic.

Primary results forecasts for the current year are also positive compared to previous estimates. The forecast for a primary surplus of 0.7% of GDP has a “good base” from 2022 as last year’s primary budget deficit due to nominal GDP growth (fueled by unmanaged inflation) is capped at 1% of GDP (perhaps even lower) against the initial estimate of 1.6% of GDP.

However, the leaders of the economic headquarters do not hide the fact that difficulties may begin in 2024, with changes to the Stability Pact, which, combined with the “cutter” of primary spending, minimizes the scope for flexible fiscal policy. The first priority will be to restore the budget to a permanent primary surplus.

A source in the Ministry of Finance notes that negotiations with institutions on achieving primary surpluses below 2% of GDP (which will not create “loopholes” in the real economy) will be launched in the fall by the government, which will be formed after the elections. This will be preceded by the submission to the European Commission of the Stability Program (April 30) and the Medium Term Program for 2024-2027, both of which will include the latest assessments of the course of the economy and the impact on fiscal performance from policies already announced and set.

It is noted that financial personnel do not ignore that inflation remains a big “splinter” in the economy, especially in food products and in food products in general. Typical of recent statements by Finance Minister Christos Staikouras that inflation seems to be sustainable, and he described it as “a big problem for 2023”. He added that this would be slightly below estimates, around 4.5%, but noted that “we won’t see prices drop or stabilize, we’ll see prices rise at a reduced rate.” He added that precision is about moving away from energy and focusing on food.

Source: RES-IPE