CENTRE OF PLANNING AND ECONOMIC RESEARCH Issue 26, February 215 GREEK ECONOMIC OUTLOOK Macroeconomic analysis and projections Public finance Human resources and social policies Development policies and sectors Special topics
Contents Issue 26 - February 215 Editorial 3 1. Macroeconomic analysis and projections 4 1.1. Recent developments and prospects in the main demand components 4 1.2. Recent Current Account developments (January- 214) 11 1.3. The evolution of the Consumer Price Index (CPI) in Greece and the Eurozone 13 1.4. Recession probabilities for the Greek economy Current period and forecasts 15 1.5. Factor model forecasts for the short-term prospects in GDP 17 2. Public finance 19 2.1. State Budget execution 214 19 2.2. Evolution and structure of public debt 21 3. Human resources and social policies 24 3.1. Labour market developments 24 3.2. Recent developments in poverty and social exclusion 31 4. Development policies and sectors 35 4.1. The evolution of the Greek transport fuels market, 29-214 35 4.2. Analysis of the Greek food supply chain 4 4.3. Economic programming issues 44 GREEK ECONOMIC OUTLOOK 215/26 1
Special topics 46 A critical approach to the new framework for creating tourism investment during the current period of economic crisis 21-214 46 The determinants of Greek exports: Analysis of the effects of international demand and domestic competitiveness on the Greek sectoral exports 56 Greek banking support framework: A first attempt 63 2 GREEK ECONOMIC OUTLOOK 215/26
2.2. Evolution and structure of public debt Christos Triantopoulos In 214, public debt is estimated, according to the 215 State Budget (December 214), to stand at lower levels compared to the previous year. Specifically, the General Government debt is estimated to have reached 318 billion at the end of 214 from 319.1 billion in 213, while in relative terms to GDP, public debt continues to increase, as in 214 it is estimated to reach 177.7 of GDP from 174.9 of GDP in 213 (Chart 2.2.1). So, 214 is the first year that a reduction even marginal of public debt occurs after the restructuring of public debt in 212. This result is attributed, on the one hand, to the achievement of a primary surplus, the reduction of interest expenditure, and the returns of profits by the central banks of the Eurosystem; and, on the other hand, to the public debt management through the exploitation of repo agreements with General Government entities. CHART 2.2.1 General Government debt and interest expenditure 4 35 3 25 2 15 1 5 11.9 299.7 129.7 13.2 329.5 148.3 17.3 15.1 355.1 157.2 33.9 9.7 319.1 318 316.9 7.3 7.5 7.9 174.9 177.7 171.4 29 21 211 212 213 214* 215** General Government Gross Debt ( GDP) (lhs) General Government Gross Debt ( bn) (lhs) General Government Interest Expenditure ( bn) (rhs) Source: European Commission (214) and Ministry of Finance (214). * Estimation. ** Forecast. The State Budgetary Government Debt (which is the debt that occurs if the debts of the General Government legal entities, the local governments, and the social security organizations as well as the so-called intra-governmental debt are not included in the calculation) is estimated, according to data from the 215 State Budget (December 214), to close in 214 to 321.8 billion (or 179.8 of GDP) from 321.5 billion in 213 (or 176.2 of GDP). Until 214, according to the Public Debt Bulletin published by the Public Debt Management Agency 16 14 12 1 8 6 4 2 (PDMA), the debt reached 321.7 billion from 322.4 billion at end-june of the same year, or 321.9 billion in late 213. The same levels were maintained in the coming months as well. According to data from the Monthly Bulletin of General Government Data published by the General Accounting Office (November 214), in late November 214 State Budgetary Government debt amounted to 321.8 billion. The characteristics have changed significantly since the country s entrance to the EU/ECB/IMF Support Mechanism and, especially, after the restructuring of public debt in 212. In particular, according to the Public Debt Bulletins of the Ministry of Finance and PDMA, in 214 the largest part of the debt was non-tradable (75.2) and at floating rate (7.8), reversing in both cases the ratios compared to 211 (Table 2.2.1). This evolution in the debt composition is due to the continuous increase in the country s funding from the EU/ECB/IMF Support Mechanism, which is based on non-tradable and floating rate loans. Additionally, in 214 the share denominated in currencies other than the euro doubled (4.6) compared to 211, as a result of the increase in IMF loans to Greece. The greatest change lies in the structure of State Budgetary Government debt as, after entering the EU/ECB/ IMF Support Mechanism and the restructuring of public debt, the largest part of the debt is held by the official sector (Table 2.2.2). Specifically, according to the 215 State Budget, the share that will be reflected in bonds is estimated to have reached 2.7 of the debt (66.6 billion) from 7.6 (259.8 billion) in 211. The decreased exposure to private sector bonds was covered by the loans after the entrance to the EU/ECB/ IMF Support Mechanism. Totally, loans reflected 73.1 (235.1 billion) in 214, from 25.3 (93.1 billion) in 211. In particular, the share in 214 concerning loans from the EU/ECB/IMF Support Mechanism is estimated at 68 of the debt, i.e. 218.9 billion. It is, however, a ratio of bonds to loans, which will gradually change when Greece further returns to borrowing from the international capital markets. Finally, in 214 the exposure to Greek Government T-bills remained at an acceptable level of 15 billion, while part of the borrowing needs was covered through the exploitation of the repo method with entities of the General Government, which reached 5 billion. In parallel, however, with the change in the structure, the State Budgetary Government debt has improved significantly both in terms of duration of its maturity, as well as in terms of its cost. Specifically, in 214 the weighted average maturity increased by 162 compared to 211, reaching 16.5 years from 6.3 years in 211, while the weighted average cost of new borrowing for GREEK ECONOMIC OUTLOOK 215/26 21
TABLE 2.2.1 Composition of State Budgetary government debt 211 212 213 A. Rate Fixed rate 1 64. 43.4 28.4 29.2 Floating rate 1, 2 36. 56.6 71.6 7.8 B. Trade Tradable 76.7 45.1 28.3 24.8 Non-tradable 23.3 54.9 71.7 75.2 C. Currency Euro 97.7 96.7 95.7 95.4 Non-euro area currencies 2.3 3.3 4.3 4.6 Source: Public Debt Bulletin ( 211, 212, 213, 214). Notes: 1 Fixed/floating participation is calculated including Interest Rate Swap transactions. ² Index-linked bonds are classified as floating rate bonds. 214 TABLE 2.2.2 State Budgetary debt by major categories 211 212 213 214* A. Bonds 259,774 7.6 86,297 28.2 76,296 23.7 66,568 2.7 Bonds issued domestically 24,94 65.5 81,769 26.8 73,415 22.8 63,791 19.8 Bonds issued abroad 18,521 5. 4,38 1.4 2,72.8 2,64.8 Securitization issued abroad 313.1 22.1 161.1 137. B. T-Bills 15,59 4.1 18,357 6. 14,971 4.7 15,115 4.7 C. Loans 93,145 25.3 2,883 65.7 23,211 71.6 235,117 73.1 Bank of Greece 5,684 1.5 5,212 1.7 4,735 1.5 4,264 1.3 Other domestic loans 837.2 119. 116. 11. Special purpose and bilateral loans 7,257 2. 7,69 2.3 7,4 2.2 6,77 2.1 Financial Support Mechanism loans 73,21 19.9 183,99 59.9 213,152 66.3 218,953 68. Other external loans 6,157 1.7 5,384 1.8 5,24 1.6 5,2 1.6 D. Short-term loans... 5, 1.6 Repos... 5, 1.6 Total (A+B+C+D) 367,978 1. 35,537 1. 321,478 1. 321,8 1. Source: 215 State Budget and 214 State Budget. * Estimations, Ministry of Finance. the debt was maintained in 214 at a rate slightly higher than 2, from around 4 in the pre-212 period (Chart 2.2.2). These positive developments are the result mainly of the restructuring that took place in 212, under the EU/ECB/IMF Support Mechanism, where the maturity was transferred in the coming decades and borrowing costs were reduced to half. Thus, the maturity of debt securities and, mainly, loans is allocated, now, on a long-term range that extends up to 257 (Chart 2.2.3). The significant reduction of the cost of funding and the high expansion and dispersion of the debt s maturity profile, combined with the fact that most of the debt is held by the official sector, have contributed significantly to the long-term debt sustainability. Since this dispersion concerns mainly loans, the challenge is to achieve a corresponding dispersion of maturity of the securities, in particular bonds, which are accumulated until 219 for the next decades. Towards this direction, of course, 22 GREEK ECONOMIC OUTLOOK 215/26
CHART 2.2.2 Central Government debt: Weighted average maturity and weighted average cost of new annual borrowing 18 16 14 12 1 8 6 4 2 6.2 5 4.7 5.3 5.5 5.8 6.2 6.1 3.4 3.4 3.1 3.7 6.8 7.1 16. 16.5 6 15. 4.4 4.6 4.1 4.3 5 3.9 4 7.8 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214* Weighted average maturity of annual funding (years) (lhs) Weighted average cost of new annual funding (interest rate) (rhs) Source: PDMA (214). 8.5 7.9 7.1 6.3 2.3 2.5 2.2 7 3 2 1 CHART 2.2.3 Central Government debt maturity profile* ( ) 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, 214 215 216 217 218 219 22 221 222 223 224 225 226 227 228 229 23 231 232 233 234 235 236 237 238 239 24 241 242 243 244 245 246 247 248 25 253 254 257 Source: 215 State Budget. * In 3/9/214. Bonds and T-bills Loans it is necessary to continue the country s gradual return to borrowing from the international markets. In 214 the first steps back to the markets were made after four years, through issuing two fixed-rate bonds of five-year (3 billion) and three-year (1.5 billion) duration, contributing positively to the reconstruction of the yield curve of the securities. The country s funding from the markets, coupled with the positive fiscal performance and the exploitation of repo agreements, enabled the country to meet its funding needs without being directly affected by the partial freezing of funding flows from the EU/ECB/IMF Support Mechanism. Specifically, in 214, only 11.9 billion were disbursed until July and the total amount awarded from both loan agreements of the EU/ECB/IMF Support Mechanism stood at 226.9 billion from a total of 237.5 billion for the period 21-214 (see the relevant European Commission website for Greece). This difference between projected funding flows from the EU/ECB/IMF Support Mechanism and the realized disbursements used to cover the country s funding needs was, also, covered by borrowing from the international markets. In particular, according to data of the PDMA s Public Debt Bulletin, until 214, 19.3 of new borrowing was related to fixed-rate bonds, while 36.8 concerned loans from the EU/ECB/IMF Support Mechanism (Chart 2.2.4). The ability to raise funding both through the gradual return to the markets and through the repo agreements CHART 2.2.4 Composition of new borrowing (Jan.-Sept. 214) 41.6 19.3 1.7 26.1 2.3 Source: Public Debt Bulletin ( 214). IMF Loans EFSF Loans Floating Rate Bonds Fixed Rate Bonds T-Bills came up because both tactics took place within the secure framework of the Support Mechanism of the EU/ ECB/IMF, allowing the country to cover its financing needs with resources beyond the EU/ECB/IMF Support Mechanism. It is critical, therefore, in order for the country to continue its gradual return to the markets and the further use of other methods of liquidity and funding, to continue public debt management in a funding environment of institutional security provided by Greece s European partners, which would prevent any speculative pressures and allow the country s funding needs for 215 to be fully met. GREEK ECONOMIC OUTLOOK 215/26 23