Risks for growth in 2022

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By Tasos Dasopoulos

The prolongation of the pandemic, the price increases in energy products, but also possible delays in the implementation of development initiatives such as the Recovery Fund, are the main risks identified by the OECD and the EU and acknowledged by the Ministry of Finance for the development of 2022.

The European Commission, which monitors the economy more closely due to the increased surveillance regime, sees the prolongation of the pandemic as the first and greatest danger.

According to the report for the 12th post-memorandum evaluation, a continuation of the restrictions will create new needs for support measures for 2022 (in addition to the 3 billion euros that have already been included in the budget, overturning the fiscal plans that have been made.

Also, due to the extension of the pandemic, it is possible, according to the Commission, to have repayments of part of the state guarantees for the loans of 11.6 billion euros, which were given during the pandemic to companies.

A second risk that is highlighted is the maintenance of high prices for energy products for a long time, as this could trigger additional support measures. In terms of the size of inflation, the EU does not seem to be worried as, despite its significant increase, it is on average very low compared to the European average, while the hard core of inflation is at 0.3%.

The Commission also emphasizes that the crucial implementation of the Development Fund reforms and investments, which is the main pillar of economic growth for the coming years until 2026, is crucial for maintaining the growth dynamics of the economy for 2022.

The OECD

The OECD, in its report on the prospects of the Member States published on Thursday, points out that a continuation of the pandemic will result in new travel restrictions and consequently a new “blow” to tourism, which seems to have recovered significantly in 2021.

In terms of rising inflation, the OECD seems to be less concerned. In particular, he emphasizes the price increases in energy products and the problem they create in the budgets of businesses and households will be addressed with the measures already taken by the Government. And when prices stabilize, he predicts that inflation in Greece will decline.

The OECD considers the delays in reforms and investments to be a more serious risk, stressing that this could delay the return of the economy to competitiveness after the pandemic and the increase in employment.

For this reason, it considers the correct and timely implementation of the investments and the reforms of the Recovery Fund crucial.

The Ministry of Education

In the text of the 2022 budget, the Ministry of Finance recognizes as possible risks for the development, the prolongation of the pandemic, the maintenance of inflation at high levels, any permanent damage to the economy that will be revealed after the withdrawal of support measures the delay or failure in harnessing the resources of the Recovery Fund and the effects of the climate crisis.

All the (mainly external) risks created by an environment of strong uncertainties for macroeconomic and budgetary forecasts are highlighted.

It is noted, however, that the effect on the nominal growth rate and consequently on budget revenues is not clear and depends on the extent and duration of these changes.

Especially for the effect of inflation will depend on the elasticity of demand and supply of products and services that will be affected. The chances that nominal GDP will not be negatively affected increase as long as medium-term inflation expectations are not destabilized.

The alternative budget scenario envisages that a reduction in the nominal GDP growth rate by 1.0% to 3.5% from the 4.5% forecast in the baseline budget scenario means that next year’s GDP (in current prices) will be 185.5 billion euros from 177.6 billion euros in 2021, compared to a nominal GDP of 187.3 billion euros in 2022 according to the baseline scenario.

Such a change would lead to a deterioration of the fiscal balance by 0.5% of GDP compared to the 2022 Budget scenario.

Specifically, in this case the budget deficit would be -4.5% of GDP versus -4.0% of GDP, while the primary budget result according to ESA would be -1.9% of GDP versus -1.4% of GDP. In absolute terms, the reduced nominal growth rate of 1.0% would lead to an additional budgetary burden of 0.85 billion euros.

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Source From: Capital

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