Greece sees deeper recession this year, milder rebound in 2021
Greece expects a deeper recession this year than previously forecast after a second lockdown to contain a resurgence in COVID-19 infections and a milder rebound in 2021, its final 2021 budget submitted to parliament on Friday showed.
This year the economic contraction is now expected to reach 10.5%, deeper than a previously projected 8.2% slump in draft budget forecasts in October.
Next year’s final budget, which requires parliamentary approval, projects a milder rebound in 2021 with the economy growing by 4.8% under a baseline scenario, less than an earlier forecast for a 7.5% expansion clip.
The second wave of the pandemic forced the Greek government to impose a second nationwide lockdown in early November after a big rise in coronavirus infections.
Although less restrictive than the first national lockdown, if it becomes protracted it is likely to further dent economic activity.
Greece, which saw a quarter of its national output sapped by almost a decade of financial turmoil, emerged from recession in 2017. Its economy shrank 14% in this year’s second quarter, marking the steepest quarterly contraction in at least 25 years.
With uncertainty over the course of the pandemic unlikely to be dispelled until the beginning of 2021, the roll out of vaccines may brighten prospects.
“Should a vaccine be rolled out, 2021 will be the year when Greece will find a way to unwind extraordinary measures while preparing for a genuine recovery,” ING senior economist Paolo Pizzoli said in a report.
SLUMP TO BLOAT DEBT RATIO
The economic contraction this year has taken a toll on tax revenue while support measures to cushion the hit have increased government expenses.
The 2020 final budget sees the primary budget balance, which excludes debt servicing outlays, reaching a 7.2% of GDP deficit this year before shrinking to 3.9% of economic output in 2021.
“If restrictions are extended or new ones are imposed in the coming year, the fiscal result will deteriorate compared to the finance ministry assessment,” the fiscal council, an independent audit council, said.
For the euro zone’s most indebted economy as a percentage of GDP, this year’s economic slump will push Greece’s public debt to 208.9%, budget projections showed, with the debt load easing to 199.6% in 2021.
Source: Reuters (Additional reporting by Angeliki Koutantou and Michele Kambas; Editing by Hugh Lawson and Angus MacSwan)