The Ministry of Finance sees further slowdown of the recession in the economy to 3%, in its October forecast, compared to 3,5-4% in August, while the 4th annual review of the country`s adjustment programme includes the assumption that the annual contraction of the economy for 2014 will be 4.2%.
“We maintain our view that growth in 2014 will remain negative, not exceeding 3%, and we assume a rebound in 2015 with a gradual restoration of lending at affordable rates”, says the October Public Debt Management newsletter.
In the 2nd quarter of 2014, GDP (in seasonally adjusted terms) contracted by -2.5% compared with -3.9% in the 1st quarter of 2014 on an annual basis.
Exports of goods decreased by 6.2% in January-July 2014 compared to the corresponding period in 2013. In January-August 2014 tourist arrivals increased by 5.9% compared to the corresponding period in 2013. Inflation stood at 0.8% in August 2014 compared to 0.9% in July 14 and for 2014 so far it stands at -0.3%.
Unemployment, in monthly seasonally adjusted figures, decreased from 16.1% in July 2013 to 14.9% in July 2014 (15% in June 2014). The most affected segment of the population is youth. Particularly worrying is also the rapid increase in long-term unemployed.
Compensation per employee in the 1st half of 2014 declined by around 5.1% compared to the 1st half of 2013, contributing to a decline of nominal unit labour costs and improving cost competitiveness further.
The upcoming banking stress tests in October and the resolution of the issue of the foreclosure legislation will be the major drivers for the bond market yields in the coming months. External factors (the Ukrainian and Middle East crises) are expected to have an effect too.
The authorities intend to adapt the Road map in examining the external restrictive measures, aiming towards their gradual relaxation and eventual abolition, while ensuring consistency with financial stability.
Fiscal Developments
According to the Ministry, developments in public finances continue to exceed expectations.
General government budget balance (GGBB) was in surplus during the first 8 (eight) months of 2014, of the order of €126 mn (0.8% of GDP) compared to a deficit of €263 mn (-1.7% of GDP) during the same period of the previous year.
General government primary balance (GGPB) was in surplus during the first 8 (eight) months of 2014, of the order of €457 mn (2.9% of GDP) compared to a surplus of €135 mn (0.8% of GDP) during the same period of the previous year.
Total revenue exhibited a positive rate of growth of about 6.7%, reaching €4,449 mn during the first 8 (eight) months of 2014, compared to €4,170 mn during the same period of the year before.
Total expenditure exhibited a negative rate of growth of about 2.5%, reaching €4,323 mn during the first 8 (eight) months of 2014, compared to €4,433 mn during the same period of the year before.
In accordance with the macroeconomic scenario agreed during the 5th review, the budget balance is estimated to exhibit an improvement with the deficit falling to 4.7% of GDP in 2014 compared to a deficit of 5.4% the year before.
Public debt and financing
The General Government Debt at the end of September 2014 (preliminary data) stood at €18.4 bln. This indicator has not changed since December 2013.
Short term yields have continued to drop with three month primary market yields dropping to 3.9% in August (no new issuances took place in September). Long term bond yields exhibited a significant drop in August and early September as the effects of the ECB’s monetary decisions were taken in by the markets but have risen again following the general trend in the European periphery. Yields remain below the 5% mark.
The 6th Programme tranche was not disbursed in September 2014 (€433 mln) due to non-compliance in introducing legislation on foreclosure as demanded by the Programme partners.
