The macroeconomic and fiscal consequences of the pandemic remain manageable in the short-term, but that should not be a reason for complacency, the Parliament’s State Budget Office said in a report on economic trends in the second quarter of 2020.
Instead, it said, it makes it imperative to prepare the Greek economy to deal with the impact when all special conditions and favorable interventions currently in place will be lifted.
The report noted that additional expansionary measures will be needed to deal with the economic impact of the pandemic. It also noted that a 15.2 pct contraction of the country’s GDP was slightly deeper than the office’s forecasts (13.7 pct), but noted that an increase in the unemployment rate was really contained compared with the depth of the recession.
The report said that a gradual return of the economy to normality was expected to begin; however, an increase in coronavirus from August and lower than expected results of tourism increased uncertainty over the extent and duration of the crisis, allowing little room for optimism. It also stressed that a lifting of limitations in lay-offs is expected to spark a significant increase in unemployment.
The Office noted that a deterioration in fiscal data did not bear any significance in the short term since the Eurozone has decided to suspend fiscal rules because of the crisis, while the Greek state’s credibility remains unchanged, as seen by the low yields of state bonds and securities. However, in the medium term, fiscal deterioration combined with a decline in GDP will lead to a big increase in the public debt/GCP ratio.
The report noted that expansionary measures should not be limited to transfers and tax cuts by also to public consumption and investment. Another risk is a reversal of progress made in combating poverty and social exclusion.