Greece’s economy will contract by an estimated 8.2% this year due to the effects of the coronavirus pandemic before picking up next year, the government said Monday as it submitted its 2021 draft budget to parliament.
The 2021 budget was “drawn up in an environment of unprecedented uncertainty, due to the indefinite expiration date of the unprecedented coronavirus pandemic,” government spokesman Stelios Petsas said.
Greece emerged nearly two years ago from eight years of international bailout programs, during which it made deep spending cuts and tax increases to qualify for rescue loans. Its financial crisis sent unemployment skyrocketing and wiped out a quarter of the economy.
The country’s public debt is projected to reach 337 billion euros this year, or 197.4% of gross domestic product. That would fall slightly to 342 billion euros, or 184.7% of GDP, in 2021, according to the draft budget. Unemployment is forecast to rise to 18.6% this year, compared with 17.3% last year, before dipping to 16.5% next year.
Petsas said the recession forecast for 2020 is less severe than the 8.7% contraction estimated for the eurozone as a whole. The economy is expected to bounce back 7.5% next year, so that “Greek people’s income will remain almost unchanged” during the two-year period, the budget said.
The primary budget balance – that is, the government’s budget without taking into account the cost of servicing debt – will tumble to a deficit of 6.2% this year, and remain in a deficit of about 1% next year.
Submitting the draft budget 2021, Finance Minister Christos Staikouras said it was drafted during period in which the global economy and societies continued to be tested by the most serious health crisis of the last 100 years and the resulting worst annual global economic recession since the end of the World War II.
“The 2021 state budget is drafted, unfortunately, under odd and extremely adverse conditions and in a state of serious uncertainty,” he said, adding that this uncertainty forced European institutions to decided the extension of more flexible fiscal policy in 2021 to protect, as much as possible, the productive and social fiber from the impact of the pandemic.”
Staikouras said that EU funds safeguarded by the Greek government from the Recovery Fund and the React EU will add two percentage points to economic growth in the country in 2021, from 5.5 pct (base scenario) to 7.5 pct (final provision). Under the adverse scenario, however, economic growth will reach 4.5-5.0 pct in 2021.
Staikouras said that a provision for a dynamic economic recovery in 2021 is also based on measures to lower the tax and social insurance burden on enterprises to encourage job creation, such as lowering social insurance contributions by three points, abolishing a solidary contribution tax and hiring new workers without social insurance contributions for up to six months. The 2021 budget also envisages, for safety reasons, to maintain a capital buffer to deal any future needs.
sources: ap, amna, others