How will the economy go from recovery to growth

By Tasos Dasopoulos

The transition from strong recovery to sustainable development is the main goal of economic policy for 2022, in a climate of high uncertainty due to the double crisis of inflation and pandemic and subject to specific conditions and challenges that the financial staff will have to face.

At the size level, the messages are encouraging. The final data for 2021 that will be announced in the first quarter of 2022 will show that in 2021 growth will exceed 8%, covering most of the 9% recession we had in 2020 due to COVID-19. According to information, this result is expected to be announced by the European Commission in its winter forecasts that will be issued in February. With the positive effect (carry over) from the 4th quarter of 2021, the economy is projected to grow in 2022 over 5% (as already predicted by the EU), compared to the official budget forecast of 4.5% reaching Next year ‘s GDP over 190 billion euros. The success of the goal is conditional on the fulfillment of three critical goals.

The first is to successfully complete the € 11 billion public investment target with the help of the Recovery Fund and the Community Structural Funds for the 2014-2020 period, as well as the next 2021-2027 programming period. Additional foreign direct investment of about 2.8 billion euros is expected from the promotion of the privatization program.

The second is to diffuse growth so that the disposable income of households and businesses can continue to grow, which in turn will support the 3% increase in private consumption, which is also a target of the Budget. In this direction, YPOIK has launched measures amounting to 2.2 billion with tax reductions (suspension of solidarity contribution, reduction of contributions), reduction of ENFIA but also in cooperation with the Ministry of Labor the double increase of the minimum wage in 2022.

The danger of the post-COVID era

The third key goal is for the real economy to return to normal operation after the 43.3 billion support measures without a wave of padlocks and layoffs. The possibility of permanent damage to a part of the productive fabric after the economic shock of the pandemic, have been pointed out in its reports by both the European Commission and the IMF, as well as the OECD. To avoid this, three conditions must be met:

1. That companies will have enough liquidity to operate and – as many as have the potential – to export products and services. In this direction, Banks, Ministry of Finance and professional bodies have already set a goal by the end of 2022 to have 100,000 more companies with a banking profile. Also, Banks and YPOIK through the Hercules I and II programs have set a goal until the end of next year to have a single-digit percentage of red loans in order to free up resources that will become loans for the real economy.

2. Businesses will have to cover their production costs from the high prices of energy products which will continue for at least the first half of 2022 affecting exports. YPOIK has already requested instructions from the European Competition Commission (DG Com) on how it can address the issue without the support it will provide constituting an irregular government subsidy.

Training programs for those who are unemployed so that they can quickly find a new job will continue at the same, if not faster, pace. This will be helped by training programs amounting to around € 670 million that have been integrated into the Recovery Fund. These programs would normally start this year but will eventually start operating in 2022.

The budgetary challenges

At the central level, the Ministry of Finance knows that for the next year it must maintain the delicate balance between providing adequate support for the economy and a significant fiscal adjustment to be made to deficits and debt.

The Budget aims to significantly reduce both the primary and the budget deficit. The primary deficit should be reduced from 7.3% of GDP this year to 1.2% in 2022, while the fiscal deficit from 9.9% of GDP this year to 4% of GDP next year. At the same time, debt should be de-escalated as a percentage of GDP by 7.5% of GDP to 189.6% of GDP in 2022 from 197.1% expected to close in 2021.

Achieving these goals is imperative for two reasons. The first is that Greece will have to prove that the fiscal gaps it had in 2020 are due to the increased needs of the pandemic. The second reason is that 2022 will be the time when changes at EU level will be decided at European level. . which will last at least 10 years. Europe’s most conservative will want to find bad examples of countries supporting the doctrine of maintaining austerity and tough debt and deficit fiscal rules. Nobody in Athens wants Greece to become such an example.

Both the revised stability program and the also revised medium-term program that Greece will submit in April and May will be drafted based on provisional guidelines to be issued by the European Commission until April.

The Ministry of Finance emphasizes that it is crucial both in the intermediate stage (ie with the temporary goals) but also in the discussion for changes in the stability pact, Greece must prove that it continues the effort to correct the problems of the multi-year economic crisis.

In addition, Greece wants to disengage within the next year from the regime of enhanced supervision that limits economic policy. This will be done with the suggestion of the European Commission and the consent of all its partners in the EU who were directly (through the bilateral loan of 52.3 billion) or our indirect lenders. It is clear that in order for our request to be accepted, we must prove that we are on the right financial path.