Author: G.Hardouvelis, P. Monokroussos, T. anastasatos, C. Vorlow
Publication: Greece Macro Monitor, Eurobank Research, December 2008
- Domestic economic activity is expected to decelerate in both 2008 and 2009 weighed down by tighter credit conditions and a significant deterioration in global growth dynamics. We now expect real GDP growth to come in at 2.9% this year, before sliding further to 1.0%-1.7% (interquartile range forecast) in 2009.
- Domestic inflation spiked sharply higher in the first three quarters of 2008, fuelled by higher input costs and accelerated wage growth. Yet, retreating demand-side pressures, lower energy prices and favorable base effects are likely to facilitate some moderation in year-on-year CPI during the last quarter of this year. In 2009, we see disinflation accelerating, with the average annual CPI rate retreating below 3.5%.
- Despite expectations for an improvement in budget revenue growth in late 2008, we see upside risks to the 2.5%-of-GDP target for the budget deficit this year, especially if efforts to crack down on tax evasion and reduce discretionary spending fail to yield the expected results. Meeting the 2009 fiscal deficit target of 2.0%-of-GDP also appears challenging, in view of pronounced downside risks to the domestic economic outlook and the new budget’s optimistic revenuegrowth projections.
- A certain portion of the more recent (Dec. 2008) spike in the Greek bond yield spreads appears to be country-specific i.e., not fully explained by developments in other Eurozone-periphery government bond markets. If the current yield-spread levels persist for the greater part of H1 2009, then the incremental fiscal impact – i.e., via higher interest costs on new debt – could ceteris paribus be in the order of € 150-200mn next year (or between €750-1,000mn over a period of 5-6 years).