CENTRE OF PLANNING AND ECONOMIC RESEARCH Issue 27, June 2015 GREEK ECONOMIC OUTLOOK Macroeconomic analysis and projections Public finance Human resources and social policies Development policies and sectors Special topics
Contents Issue 27 - June 2015 Greeting by the new President of ΚΕPΕ 3 Editorial 4 1. Macroeconomic analysis and projections 5 1.1. Recent developments and prospects in the main demand components 5 1.2. Recent current account developments 12 1.3. The evolution of the Consumer Price Index (CPI) in Greece and the Eurozone 15 1.4. Recession probabilities for the Greek economy Current period and forecasts 17 1.5. Factor model forecasts for the short-term prospects in GDP 19 2. Public finance 21 2.1. State Budget execution, first quarter 2015 21 2.2. Evolution and structure of Public Debt 23 3. Human resources and social policies 27 3.1. Key features of the Greek labour market 27 3.2. Migration and asylum flows in the Mediterranean and policy issues 32 4. Development policies and sectors 36 4.1. Foreign Direct Investment in Transport 36 GREEK ECONOMIC OUTLOOK 2015/27 1
4.2. Analysis of the industrial sector based on industrial production and turnover indices 40 4.3. External trade of agro-food products 43 Special topics 48 Composition and structural features of business activity in Greece: developments during the period 2008-2014 48 Output gap, potential GDP and future growth scenarios 57 Export performance and evolution of strong competitive advantages in Eurozone countries (EU11), 2000-14 63 Restructuring trends in the manufacturing external trade 72 2 GREEK ECONOMIC OUTLOOK 2015/27
2.2. Evolution and structure of Public Debt Triantopoulos Christos The evolution of public seems to be affected by the developments in public finances and the state of economic activity, as a result of both the non-completion of the economic adjustment program at the end of 2014 and the conditions created between Greece and its partners during the negotiation process. The effects of these conditions are reflected in the European Commission s spring forecasts, 1 according to which the General Government of 2015 is estimated to be 320.4 billion or 180.2 GDP, while the winter forecasts (February 2015) estimated a level of 170.2 GDP (Chart 2.2.1). 2 This revision is the result of both the revision of forecasts for the 2015 GDP growth rate compared to winter forecasts from 2.5% to 0.5% and, also, the divergence of fiscal performance against the targets, which has occurred since the end of 2014. In 2014, according to the European Commission, the General Government amounted to 317.1 billion or 177.1 GDP; it is the first year after the restructuring of took place in 2012 that the General Government CHART 2.2.1 General Government Debt and Interest Costs 400 350 300 250 200 150 100 50 0 11.9 301 126.8 13.2 330.3 146 171.3 15.1 356 156.9 304.7 9.7 319.2 317.1 320.4 319.6 7.3 7 7.5 7.2 175 177.1 180.2 173.5 2009 2010 2011 2012 2013 2014 2015* 2016* General Government Gross Debt (% GDP) (lhs) General Government Gross Debt ( bn) (lhs) General Government Interest Expenditure ( bn) (rhs) Source: European Commission (2015). Note: * Forecast. 16 14 12 10 8 6 4 2 0 was reduced, as in 2013 it stood at 319.2 billion although, according to the 2015 Budget, it was estimated to occur during the current year. This development in 2014 was the result, on the one hand, of the achievement of the primary surplus and the relatively low expenditure on interests, and, on the other hand, of the public management through the wide use of the sale of securities and the method of repo arrangements with General Government entities. In particular, according to the European Commission, in 2014 General Government expenditure on interests amounted to 7 billion or 3.9 GDP, following the significant downward trend in borrowing costs from the levels of 2011, when it had reached 15.1 billion or 7.25% of GDP (Chart 2.2.1). A reduction in borrowing costs which occurred due to the dual restructuring of public in 2012 and the postponement of payment of a significant part of the interests regarding the funding from the European Financial Stability Fund (EFSF), in the framework of the EU/ECB/IMF Support Mechanism. However, while the interest expenditure has decreased compared to the past, it remains among the highest in the Euro Area, as Greece, together with Italy and Portugal, is expected to have higher rates regarding General Government interest expenditure as a percentage of GDP in 2015, amounting to 4.20%, 4.28% and 4.91%, respectively (Table 2.2.1). The picture, of course, is different if the comparison is made between the interest expenditure and the level of public to which this expenditure is related. Also, in this index a significant decrease is observed, compared to the levels before 2012, that reaches about 50%, since in 2015 the interest expenditure as a percentage of public is expected to stand at 2.36%, from 4.56% in 2011. It is interesting, however, that spending on interest as a percentage of the public of Greece for 2015 is estimated to be below the Euro Area average (2.68%), as Greece is among the seven Euro Area member states with the lowest rates (Table 2.2.2). By comparison, therefore, the two indicators demonstrate the great importance of directing the domestic economic and productive activity towards a path of sustainable development, in order to achieve long-term sustainability of public, which is high in terms of fiscal and output capacity. Since, however, the interest expenditure was not far from the initial estimate and the fiscal performance for 2014 1. The latest forecasts of the European Commission are based on ESA-2010 that slightly updated the time series. 2. According to the analysis of the European Commission, the forecast for the level of General Government balance and is based on the scenario which assumes that [...] profits from Eurosystem securities transactions (the SMP and ANFA programmes) are transferred, which in turn presumes that new fiscal measures will be taken [...]. (http://ec.europa.eu/economy_finance/eu/forecasts/2015_spring/el_en.pdf). GREEK ECONOMIC OUTLOOK 2015/27 23
TABLE 2.2.1 General Government Interest Expenditure, as % GDP 2009 2010 2011 2012 2013 2014 2015* 2016* Euro Area 2.79 2.74 2.97 3.01 2.79 2.64 2.46 2.40 Belgium 3.62 3.42 3.37 3.38 3.12 3.07 2.82 2.67 Germany 2.64 2.46 2.49 2.30 2.00 1.74 1.59 1.48 Estonia 0.19 0.13 0.13 0.16 0.14 0.11 0.10 0.10 Ireland 2.03 2.98 3.44 4.14 4.39 4.05 3.56 3.47 Greece 5.02 5.85 7.25 5.02 3.99 3.90 4.20 3.93 Spain 1.70 1.87 2.45 2.93 3.26 3.26 3.11 2.96 France 2.40 2.39 2.60 2.58 2.27 2.19 2.07 2.14 Italy 4.41 4.29 4.66 5.21 4.84 4.65 4.28 4.24 Cyprus 2.37 2.07 2.21 2.92 3.11 2.85 2.87 2.73 Latvia 1.51 1.72 1.78 1.63 1.45 1.38 1.23 1.18 Lithuania 1.24 1.82 1.84 1.98 1.76 1.58 1.43 1.36 Luxembourg 0.39 0.41 0.46 0.46 0.44 0.36 0.35 0.35 Malta 3.27 3.08 3.14 2.98 2.89 2.89 2.71 2.64 The Netherlands 2.02 1.77 1.76 1.65 1.52 1.45 1.37 1.31 Austria 3.16 2.91 2.79 2.64 2.49 2.37 2.34 2.32 Portugal 2.97 2.93 4.32 4.88 4.91 4.96 4.91 4.52 Slovenia 1.31 1.63 1.90 2.02 2.54 3.25 3.10 2.94 Slovakia 1.43 1.31 1.54 1.78 1.89 1.92 1.62 1.57 Finland 1.33 1.33 1.39 1.42 1.27 1.27 1.23 1.16 Source: European Commission (2015). Note: * Forecast. TABLE 2.2.2 General Government Interest Expenditure, as % Public Debt 2009 2010 2011 2012 2013 2014 2015* 2016* Euro Area 3.93 3.59 3.64 3.49 3.09 2.88 2.68 2.63 Belgium 3.87 3.61 3.52 3.38 3.06 3.00 2.70 2.57 Germany 3.89 3.55 3.24 3.01 2.58 2.33 2.20 2.15 Estonia 3.62 1.95 2.27 2.91 1.51 1.18 1.02 1.08 Ireland 4.29 4.70 4.08 3.76 3.65 3.48 3.43 3.40 Greece 4.50 4.40 4.56 2.74 2.39 2.19 2.36 2.26 Spain 4.17 3.56 4.05 4.16 3.84 3.58 3.28 3.04 France 3.43 3.11 3.28 3.07 2.56 2.41 2.22 2.28 Italy 4.16 3.89 4.13 4.41 3.92 3.63 3.28 3.28 Cyprus 5.13 3.96 3.99 4.40 3.65 2.69 2.65 2.61 Latvia 6.28 4.54 4.24 4.15 3.75 3.75 3.18 3.31 Lithuania 7.00 6.52 5.67 5.66 4.63 4.22 3.66 3.45 Luxembourg 2.61 2.87 2.53 2.50 2.05 1.56 1.55 1.48 Malta 5.22 4.88 4.86 4.47 4.50 4.39 4.19 4.12 The Netherlands 3.59 3.20 3.03 2.69 2.30 2.15 2.02 1.94 Austria 4.52 3.75 3.55 3.31 3.11 2.99 2.82 2.74 Portugal 4.07 3.59 4.39 4.20 3.93 3.91 3.88 3.75 Slovenia 5.77 4.74 5.06 4.24 4.74 4.77 3.93 3.73 Slovakia 4.73 3.83 3.93 4.22 3.70 3.60 3.12 3.08 Finland 3.82 3.31 3.11 2.97 2.43 2.30 2.11 1.90 Source: European Commission (2015). Note: * Forecast. 24 GREEK ECONOMIC OUTLOOK 2015/27
was lower than expected, due to the non-return of the scheduled gains from the Euro system and the shortfall according to the European Commission 3 in public revenues in late 2014 and the first two months of 2015, a large share of public reduction in 2014 was due to the increased use of the repo method agreements with General Government entities. It is a method developed by the Public Debt Management Agency (PDMA) in 2014, offering a new option for covering the short-term needs of the State, primarily through cash flow management operations in the form of repo agreements contracted between the PDMA and General Government entities. Gradually, the use of this method has been extended, with a series of legislative acts that expand the range of General Government eligible entities, and has been transformed to a funding method due to the «freezing» of financial flows from the EU/ECB/IMF Support Mechanism since the middle of last year. Thus, from a cash flow management method, the method of repo agreements with General Government entities has become a shortterm funding tool. In particular, the use of this method in late 2014 generated 8.6 billion compared to 5 billion at the end of September 2014 (Table 2.2.3). In substance, an intragovernmental funding tool is being used, covering the inability to raise funds either from the EU/ECB/ IMF Support Mechanism or from the markets. The that is funded in the short term by the repos method is intragovernmental and thus is not counted in the General Government. Thus, although the Central Government in 2014 reached 324.1 billion (Table 2.2.3), the corresponding General Government is estimated much lower, at 317.1 billion. The increased use of short-term borrowing is also reflected in the structure of the Central Government, which at the end of 2014 accounted for 2.7 the, against 1.6% in September 2014. In contrast, the share of the Central Government Debt which is covered by the Support Mechanism loans is reduced, reaching 67.2% at the end of 2014 from 68% in September of the same year. Overall, in 2014 financing through loans amounted to 234.4 billion or 72.3 the Central Government and the financing through bonds fell to 66.5 billion or 20.5 the Central Government. This limitation of exposure of the in bonds, especially compared to 2011, is caused, on the one hand, as a result of the entrance into the EU/ECB/IMF Support Mechanism, and, on the other hand, by the dual restructuring of public in 2012, when most of the was transferred to the official sector (Table 2.2.3). Along with the structure, the main characteristics of the Central Government have also changed during the last years, as in 2014 most of the is nonnegotiable (75.0%) and at floating rate (66.8%), reversing, in both cases, the relative proportions as compared to 2011 (Table 2.2.4). This evolution in the composition is attributed to the continuous increase of the country s funding through the EU/ECB/IMF Support Mechanism, which is based on non-negotiable and floating rate loans. However, it is worth noting that compared to September TABLE 2.2.3 State Budgetary Debt by Major Categories 2011 2012 2013 2014 Q1 2015 A. Bonds 259,774.18 70.6 86,297.44 28.2 76,296.25 23.7 66,559.80 20.5 66,546.00 21.3 Bonds issued domestically 240,940.37 65.5 81,769.19 26.8 73,415.28 22.8 63,792.01 19.7 63,789.00 20.4 Bonds issued abroad* 18,833.81 5.1 4,528.25 1.5 2,880.97 0.9 2,767.79 0.9 2,757.00 0.9 B. T-Bills 15,058.63 4.1 18,356.98 6.0 14,970.82 4.7 14,528.65 4.5 14,950.00 4.8 C. Loans 93,145.19 25.3 200,882.91 65.7 230,210.90 71.6 234,434.52 72.3 221,406.00 70.8 Bank of Greece 5,683.99 1.5 5,212.33 1.7 4,734.61 1.5 4,264.10 1.3 4,266.00 1.4 Other domestic loans 836.71 0.2 118.50 0.0 115.50 0.0 112.50 0.0 113.00 0.0 Financial Support Mechanism 73,210.36 19.9 183,098.58 59.9 213,152.48 66.3 217,924.68 67.2 204,968.00 65.5 loans Other external loans** 13,414.13 3.6 12,453.50 4.1 12,208.31 3.8 12,133.24 3.7 12,059.00 3.9 D. Short-term loans (repos) 0.00 0.0 0.00 0.0 0.00 0.0 8,604.89 2.7 9,800.00 3.1 Total (A+B+C+D) 367,978.00 100.0 305,537.33 100.0 321,477.97 100.0 324,127.86 100.0 312,702.00 100.0 Source: Public Debt Bulletin ( 2011, 2012, 2013, 2014) and General Government Bulletin (February 2015). Notes: * Including securitization issued abroad. ** Including special purpose and bilateral loans. 3. See: http://ec.europa.eu/economy_finance/eu/forecasts/2015_spring/el_en.pdf. GREEK ECONOMIC OUTLOOK 2015/27 25
TABLE 2.2.4 Composition of State Budgetary Government Debt 2011 2012 2013 2014 A. Rate Fixed rate 1 62.0% 32.7% 28.5% 33.2% Floating rate 1, 2 38.0% 67.3% 71.5% 66.8% B. Trade Tradable 74.7% 34.3% 28.4% 25.0% Non-tradable 25.3% 65.7% 71.6% 75.0% C. Currency Euro 97.5% 96.7% 95.9% 95.7% Non-euro area currencies 2.5% 3.3% 4.1% 4.3% Source: Public Debt Bulletin ( 2011, 2012, 2013, 2014). Notes: 1 Fixed/floating participation is calculated including Interest Rate Swap transactions. 2 Index-linked bonds are classified as floating rate bonds. 2014 (29.2%) the share of Central Government with a fixed interest rate increased by 4 percentage points due to funding through the repo arrangements with General Government entities. CHART 2.2.2 Central Government Debt (Q1 2015), ( ; ) 12,059.0; 4% 9,800.0; 3% Short-term loans (repos) Bonds issued domestically 204,968.0; 66% Financial Support Mechanism loans Other domestic loans 63,789.0; 20% Bonds issued abroad T-Bills Bank of Greece loans Other external loans 2,757.0; 1% 14,950.0; 5% 4,266.0; 1% 113.0; 0% Source: Ministry of Finance, General Government Bulletin Q1 2015 (May 2015). The public management strategy that was followed in the second semester of 2014 continued also in the first quarter of 2015, as the funding flows of the EU/ECB/IMF Support Mechanism remained frozen and the funding from the markets was not feasible. Thus, the use of the repo agreements with General Government entities expanded in quantity and range. This further increased intragovernmental. In particular, according to the data for March 2015 in the General Government Bulletin of the General Accounting Office, repo agreements with General Government entities reached 9.8 billion or 3.1 Central Government. Therefore, since the funding needs which include the repayments to the EU/ECB/IMF Support Mechanism are covered by intragovernmental borrowing, the associated with the EU/ECB/IMF continues to decrease. The development, however, that contributed significantly to this decrease is the refund of 10.9 billion from the Hellenic Financial Stability Fund (FSF) to the EFSF, following the agreement of the Euro group on February 20, 2015. Thus, in March 2015 the Central Government regarding the EU/ECB/IMF Support Mechanism loans decreased to 204.9 billion from 217.9 billion in 2014 (Table 2.2.3), amounting now to 65.5 the Central government (Chart 2.2.2). Additionally, it is worth noting that during the first quarter of 2015, according to data of March 2015 from the General Government Bulletin, the Central Government was burdened by 570 due to changes in exchange rates, as the expression of in other currencies apart from the euro has increased in recent years, with this share rising in 2014 to 4.3% (Table 2.2.4). On the whole, therefore, the Central Government amounted to 312.7 billion in March 2015 from 324.1 billion in 2014. To sum up, the current management of public and, more importantly, the coverage of funding needs, have limits. So, it is crucial to restore the funding from the official sector for the following period, since, for the moment, the access to the private sector, apart from t-bills, seems difficult due to the extremely high cost of borrowing from the international capital markets. 26 GREEK ECONOMIC OUTLOOK 2015/27