By Tasos Dasopoulos
The estimate that inflation will jump this year to 8.5-9% on an annual basis does not only have the known negative consequences. If it is combined with the fact that growth will touch – if not exceed – 5%, it may result in a record reduction of debt at the end of the year, below 175% of GDP.
This new estimate is 5% of GDP away from the last official forecast that Brussels also has in their hands. The Stability and Development Program that the Ministry of Finance sent to the Commission in April predicted that the debt would be reduced for this year to 180.2% of GDP, but with a forecast for growth of 3.1% and inflation of 5.6%. With the exception of inflation, for which an upward trajectory is not desirable, the economy appears to be repeating the path of 2021, accelerating amid the energy crisis.
Growth is fueled by tourism, whose turnover may reach 20 billion euros (from 18.3 billion in 2019), exports continue to grow at a high, double-digit rate, while foreign direct investments had also reached at the end of July at 4 billion euros, while for the whole of 2021 they had reached 5 billion euros, based on data from the Bank of Greece.
Rapid debt deleveraging is absolutely necessary along with maintaining high growth rates to reach investment grade by 2023. The movement of the Greek economy, against the “current” of the European economic slowdown caused by the Kremlin’s energy blackmail, is estimated that he will convince the rating agencies to make the necessary upgrades so that Greek bonds will be “investable” again in 2023.
Competent sources of the Ministry of Finance clarified that the nervousness in the bond market is not a “minus” for Greece since it is horizontal for all Eurozone member states (the yield on the German ten-year bond has reached 1.54%) and can be explained (from the energy crisis for example), while the higher return can be explained by the very absence of the investment tier.
The same sources emphasized that at this time in neighboring Italy, they fear the moment the yield on the Italian 10-year bond passes 4%, making the debt unsustainable and they hope for a “fire-fighting” intervention from the ECB. At the same time, Greece can use part of its cash reserves of 39 billion euros to cover its financing needs, which do not exceed 3.3-3.5 billion euros between now and the end of the year .
Profit carried forward in 2023 as well
Along with the debt, the higher growth leaves room for the primary deficit to do better as well, which is not expected to exceed 2% of GDP no matter how many additional support measures come until the end of the year.
The much higher growth and much lower debt of 2022 will also “inherit” a very positive carry over for the economy for the beginning of 2023. Carryover growth is expected to be similar to what it had in 2021 at the start of the year and resulted in a growth rate of 7% for the first quarter of the year. This strong push is more necessary than that of 2021. This is because, at the end of 2021, we were gradually leaving behind us the corona virus crisis. At the beginning of 2023, we will be approaching the peak of the energy crisis that has particularly alarmed all of Europe.