Greece Sees Growth in 2020, Putting It on Track for Fiscal Goals

(Bloomberg) --

Greece’s government is forecasting 2.8% economic growth in 2020, which it says puts it on track to meet a budget target agreed with creditors while still enacting tax relief measures.

The creditors, however, have warned that the cost of polices to which Prime Minister Kyriakos Mitsotakis’s government has committed will create a shortfall of up to 900 million euros ($988 million) toward meeting the target of a primary surplus at 3.5% of gross domestic product for 2020.

Greece’s finance ministry insists the target will be met and sees a primary surplus of 3.56% of GDP next year.

The two sides are set to continue talks to bridge the gap until Oct. 15, when Greece and other European Union members must submit budget plans for 2020.

The government’s budget plan “secures fiscal space to reduce taxes and promote growth while at the same time covering the fiscal gap inherited by the new government for 2020 (as well as this year),” Deputy Finance Minister Theodoros Skylakakis said in an emailed statement Monday.

Greece is also banking on two other sources of financial leeway:

• So-called Securities Markets Program (SMP)/ANFA proceeds earned through past purchases of Greek government bonds at below-par prices (for investment only).
• Potential fiscal space as the European Commission in November incorporates Greece’s lower borrowing costs -- given the sharp decline in yields -- in its updated debt sustainability analysis.

Neither of these effects would be present before December. Until then, the government says it can meet the primary surplus commitment through enhancing tax collection and broadening the country’s tax base, plus pro-growth investments and spending cuts across the public sector.

Debt Sales

The government’s projection for 2020 is higher than any of the predictions from the European Commission, International Monetary Fund or the OECD -- which come in no higher than 2.2%. Economists also are more pessimistic, with a median forecast of 1.8%.

Unemployment is expected to decline further, to 15.6% in 2020 from 17.4% in 2019, while investment is expected to increase by 13.4%. Private consumption is seen rising 1.8%.

Public debt is expected to fall to 167.8% of GDP in 2020 from 173.3% this year, mainly due to higher economic output. In absolute numbers, it will still see a slight increase of about 2 billion euros to 331 billion euros.

The government plans to increase its lending through bonds by 6.1 billion next year by selling more notes, even if country’s cash buffer will be “at high levels until debt reaches investment grade.”

Greece’s finance ministry also announced that it mandated five international banks as lead managers for a reopening of the existing 10-year bond it sold in March.

The government, looking to capitalize on market conditions with yields on Greek notes at record lows, could reopen the 10-year bond as soon as Tuesday.

--With assistance from Eleni Chrepa.

To contact the reporter on this story: Sotiris Nikas in Athens at snikas@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jerrold Colten, Zoe Schneeweiss

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