The Greek Finance ministry’s estimates of the impact of the coronavirus on the Greek economy this year are at the optimistic end of the range of projections expressed to date and near those of the Bank of Greece, according to the Stability Program Athens (SPA) submitted to the European Commission (EC), April 30.

The ministry’s baseline scenario provides for a recession of 4.7%, but there is also an adverse scenario for a 7.9% contraction. Bank of Greece governor, Yannis Stournaras has made respective forecasts of 4% and 8%. Both scenarios provide for a revival in 2021 that will offset all of this year’s losses, with a 5.1% to 8% rebound.

However, May 6, the European Commission (EC) forecast Greece, Italy, Spain and Portugal will be the hardest hit by the economic effects of the pandemic, while Luxembourg, Malta and Austria are to weather the shock better. The EC forecast the eurozone economy will contract a record 7.7% this year but inflation will almost disappear while public debt and budget deficits will balloon said the EC.

The International Monetary Fund (IMF) have a baseline scenario for a 10% recession for Greece, but the country’s Finance ministry does not agree, and notes that without the emergency measures the economy would have been headed for a 13.2% contraction this year. Indeed, Morgan Stanley’s baseline scenario for shrinkage is 13.3%.

The EC forecast the Greek gross domestic product (GDP) is to contract the most in the eurozone, by 9.7%, with Italy recording the second deepest recession of 9.5% and Spain 9.4%.

In its baseline scenario, Greece’s SPA projects a primary deficit of 1.9% of GDP and in the adverse scenario 2.8%. The ministry is again optimistic regarding the effect of the pandemic on the debt, expecting a 12.2% of GDP rise to 188.8% of GDP, from 176.6% last year. For 2021, the ministry expects the debt to return to 176.8% of GDP, as does the Bank of Greece.

The Hellenic Fiscal Council showed its reservations about the program’s forecasts, noting the “particularly high degree of uncertainty” in the macroeconomic environment, and described the projection for a 4.7% recession this year as “particularly optimistic”, noting most international organisations are less optimistic.

Regarding the eurozone, European Commissioner for Economic and Financial Affairs, Paolo Gentiloni, said: “Europe is experiencing an economic shock without precedent since the Great Depression. Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country’s financial resources.”

The EC forecast that, as the economy contracts this year, consumer prices will almost stagnate. The inflation rate will slow to 0.2% in 2020, before accelerating to 1.1% next year, when the eurozone is to return to growth of 6.3%. Investment will plunge 13.3% this year, it said.

The effort to keep economies alive will boost budget deficits in the eurozone to an aggregate 8.5% of GDP this year from 0.6% last year, before the aggregate gap shrinks again to 3.5% in 2021.

A surge in public debt, however, will take longer to undo, the EC said, forecasting eurozone debt will jump to 102.7% of GDP this year from 86% last year, and receding to 98.8% in 2021.

Filed: 2020-05-07