Greece aims for strong economic growth, tax cuts in 2020

Greece hopes higher investment and tax cuts will help power economic growth next year as the country recovers from a decade-long debt crisis.

Growth will pick up to at least 2.8 percent next year from 2 percent in 2019, according to a draft budget submitted to Parliament by the conservative government on Monday.

“The draft budget … signals the economic policy's radical turn to growth, employment and income increases,” Deputy Finance Minister Thodoros Skylakakis said in an accompanying statement.

Unemployment is forecast to drop to 15.6 percent next year from 17.4 percent in 2019, while Athens projects public debt will fall to 167.8 percent of GDP, or 331 billion euros, in 2020 from an expected 173.3 percent of GDP this year.

Greece's national debt and its jobless rate are the highest in the eurozone.

The country emerged from its third international bailout last year and fiscal progress is still being monitored by its eurozone lenders, who project that the economy will grow by 2.2 percent in 2020 – much less than in the draft budget.

Greece has promised to deliver a primary budget surplus – which excludes debt servicing costs – of 3.5 percent of GDP in each year up to 2022. Athens projects a primary surplus of 3.56 percent of GDP next year, based on its draft 2020 budget.

As well as broadening the tax base, the conservative government wants to cut taxes for businesses and increase social spending next year. The policies it plans are worth 1.2 billion euros, the budget said, and will help spur growth.

Those plans are feasible as long as Athens “improves tax efficiency and reins in public spending as it has promised,” said economist Nikos Magginas at National Bank.

If the planned measures are fully implemented, economic activity would accelerate, helping to bridge the gap with the European Commission's growth projection of 2.2 percent.

The government, which came to power in July, has said it wants agreement from official lenders on lowering the 3.5 percent of GDP budget surplus target in 2021 and 2022.

Athens has outperformed its fiscal targets in recent years, with the former leftist-led government finding fiscal space to distribute the extra funds to those hit hardest by the crisis.

“Lowering any overperformance [on the primary surplus] is a first step in our effort to reduce the targets themselves, a condition for the acceleration of economic growth,” the draft budget said.

Greece has built up a cash buffer of more than 30 billion euros from unused loans and money raised from markets. It is now relying solely on bond markets to refinance its debt after years in which it was unable to borrow commercially, having completed three bond sales since emerging from its bailouts last year.

According to the draft budget, Athens plans to “ensure its continuous presence in international bond markets” through high-liquidity bond issues. [Reuters]