The Commission slashed Greek economic growth and primary surplus projections on Tuesday (5 May), forecasting deeper price falls and a higher public debt as a result of uncertainty that has dogged Athens policymaking since late 2014.
Europe’s executive, which finished gathering data for its forecast on 21 April, said it now expected the Greek economy would grow only 0.5% this year, after 0.8% in 2014 and accelerate to 2.9% in 2016, unless policies change.
Three months ago, the Commission forecast Greece would grow 2.5 percent this year, and 3.6% in 2016, after a 1.0% expansion last year.
“The positive momentum, however, has been hurt by uncertainty since the announcement of snap elections in December,” the Commission said in its quarterly economic forecasts of main indicators for all 28 countries of the European Union.
“The current lack of clarity on the policy stance of the government vis-à-vis the country’s policy commitments in the context of the EU/IMF support arrangements worsens uncertainty further,” it said.
Greece is in heated negotiations with its international creditors to secure more loans in exchange for reforms as it quickly runs out of cash and faces the prospect of default.
The country’s primary surplus, the budget balance before debt servicing costs, will be only 2.1% this year, rather than the 4.8% projected only three months ago.
Next year it will be even worse. The surplus will be 1.8% of GDP, rather than the earlier expected 5.2% of GDP unless Athens changes policy.
The budget balance will also be much worse than thought only three months ago. Rather than a surplus of 1.1%, Greece will have a budget deficit of 2.1% this year.
A surplus of 1.6% forecast for 2016 has now turned into a deficit of 2.2%, unless policies change.
This deficit forecast assumes that Greece will get back almost €2 billion in profits that the European Central Bank made on buying Greek securities at the peak of the sovereign debt crisis.
To get that money, however, Athens will have to reach an agreement with its creditors on reforms — a deal that has eluded negotiators for the last three months.
Because growth will be lower, Greece’s debt-to-GDP ratio will be higher than previously expected. Instead of having peaked last year at 176.3% of GDP, the debt will only have reached its highest point this year at 180.2% of GDP, before declining to 173.5% in 2016.