Economic Analysis, Greece

Tackling “hard core” of reforms agenda

Authors: Gikas Hardouvelis, Platon Monokroussos, Constantine Papadopoulos, Costas Vorlow, Theodosis Sampaniotis
Publication: Greece Macro Monitor, Eurobank Research, October 2007

Key points:

  • ƒ Full-year real GDP growth is expected to come in at around 4.1% in 2007, exceeding a 3.9% initial official projection. Domestic demand remains the main engine of economic activity, while the external sector continues to exert a negative contribution. Economic prospects for the coming 2-3 years look favorable, with annual GDP growth rates expected in the 3.5-4.0% region. Variations in the composition of future growth are likely to be marginal, with economic activity remaining domestic demand-driven.
  • According to the 2008 draft budget, the bulk of fiscal adjustment next year is projected to come mainly via higher ordinary-budget revenues, which are projected to slash as much as 1ppt-of-GDP off next year’s general government budget deficit. Medium-term challenges to fiscal consolidation include: (i) expenditure pressures due to large interest payments and amortization costs, (ii) the need to run sizeable public investment budgets (PIBs) in the years ahead in order to facilitate the proper absorption of EU structural funds, (iii) widespread tax evasion hindering efforts to maintain a strong pace of revenue growth without resorting to additional indirect taxation, and (iv) the need to generate the necessary surpluses for implementing a long-due overhaul of the country’s social security system
  • Re-elected conservatives tackle “hard core” of reforms agenda (balanced budget, pensions reform, privatisations) while targeting a more efficient social policy. Government pledges to continue reform of state enterprises, and to extend rationalisation efforts to local government, hospital and pension funds. Creating a truly business-friendly environment and a more transparent system of administration remain among top challenges.

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