Greece: Staff Report for the 2007 Article IV Consultation

International Monetary Fund

doi:10.5089/9781451816303.002.A002

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Greece: Staff Report for the 2007 Article IV Consultation

Author: International Monetary Fund

Publication Date:: 02 May 2008

eISBN:: 9781451816303

Language:: English

Keywords:: ISCR; CR; deficit; IMF staff projection; adjustment path; IMF staff estimate; product market; import growth; MoF baseline; labor cost growth; project real GDP growth; goods balance; Labor costs; Inflation; Imports; Fiscal stance; Consumer prices

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The Greek economy showed strength supported by solid gains in employment, substantial real wage increases, low interest rates, and rapid credit expansion. Executive Directors appreciated the performance of the banking system and welcomed the Bank of Greece’s efforts to strengthen provisioning requirements and lending standards. Directors welcomed the balanced budget and product market reform and stressed the need to improve tax administration. They advised that sustained fiscal consolidation is helpful for safeguarding debt sustainability. Directors emphasized for a budget framework to guide fiscal strategy and prioritize policy objectives.

Abstract

This supplement contains the authorities’ latest estimates for 2007 and updated information on the economic outlook for Greece that have become available since the circulation of the staff report for the Article IV consultation. The key changes are shown in the attached tables. The information does not alter the thrust of the staff appraisal, though stronger projected unit labor cost growth heightens concerns about eroding competitiveness going forward.

1. Economic growth in 2007 remains the same as previous estimates but the composition of growth has changed. Real GDP growth for 2007 is estimated at 4 percent. Although still the main driver of growth, domestic demand growth is now lower because of weaker investment resulting from a decline in residential construction and lower growth in other investment components. Net external demand has improved relative to previous estimates due to a deceleration of import growth.

2. Both the authorities and staff have revised their forecasts in view of the further deterioration of the global outlook. The authorities now project real GDP growth for 2008–09 at 3.6 percent, 0.4 percentage points lower than previous estimates. The main factors behind this downward adjustment are slower export growth and weaker domestic demand reflecting an expected tightening of credit conditions and the dampening effect of higher inflation on real disposable income and consumption. Staff sees real GDP growth in 2008–09 lower than the authorities, at 3.3 percent, as a result of a less favorable external environment. The staff projections in this supplement are lower than in the World Economic Outlook because of a carry-forward of the lower investment evident in the revised figures for 2007. The current account deficit is, however, projected to improve relative to staff’ previous estimates due to lower import growth.

3. The authorities do not expect the fiscal outturn to be much different from their baseline scenario. The 2007 general government deficit outturn is now estimated at 2.8 percent of GDP, 0.1 percent of GDP higher than previous estimates. For 2008–10, the authorities’ envisaged deficit adjustment path has remained broadly unchanged, with however a slightly different composition of revenue and expenditure. Staff projects the general government deficit for 2008–10 to be higher than officially targeted by 0.1–0.4 percent of GDP mainly because of lower economic growth.

4. Inflation has continued to accelerate in recent months and the inflation outlook in 2008 is more negative than previously forecast. Inflation was 4.4 percent in March on a year-on-year basis partly boosted by higher food prices. Given the rising inflationary pressures during the first months of 2008 and higher food and oil prices, staff have revised up their inflation forecast for 2008 from 3.3 percent to 3.7 percent. Inflation in 2009 is expected to decline as carryover effects wane. Unit labor cost growth is expected to pick up in 2008 to 5.5 percent and, although declining, remain high in 2009.

Macroeconomic Projections, 2007–10 ^1/

(Percentage changes, unless otherwise indicated)

Sources: National Statistical Service; Ministry of Economy and Finance; and IMF staff projections.

^{^1/}This table corresponds to the text table in page 6 of the staff report.

^{^2/}Authorities’ baseline scenario as specified in the December 2007 SGP update.

^{^3/}ESA95 basis.

Macroeconomic Projections, 2007–10 ^1/

(Percentage changes, unless otherwise indicated)

		2007		2008				2009				2010
		Staff Report	MoF Latest Est.	MoF Baseline ^2/	MoF Revised	Staff Report	IMF Revised	MoF Baseline ^2/	MoF Revised	Staff Report	IMF Revised	MoF Baseline ^2/	MoF Revised	Staff Report	IMF Revised
Real GDP		4.0	4.0	4.0	3.6	3.7	3.3	4.0	3.6	3.5	3.3	4.0	3.8	3.6	3.5
Total domestic demand		4.9	4.6	4.7	3.2	4.4	3.3	4.4	3.5	3.9	3.6	4.3	3.8	4.1	3.8
Net exports (contribution to growth)		-1.7	-1.3	-1.4	-0.2	-1.3	-0.6	-1.1	-0.4	-1.1	-0.9	-1.0	-0.5	-1.2	-0.8
	Exports of goods and services	7.6	5.9	7.3	6.8	6.6	6.0	7.6	7.0	6.6	6.0	7.7	7.1	6.5	6.6
	Imports of goods and services	9.1	7.0	7.8	4.5	7.2	5.0	7.2	5.2	6.4	5.8	7.0	5.7	6.6	6.1
Current account (percent of GDP) ^3/		-14.6	-16.4	-14.4	-14.4	-15.0	-14.8	-14.2	-13.9	-14.8	-14.7	-13.9	-13.5	-14.7	-14.6
Memorandum items:
	Growth of relevant foreign markets	8.4	…	7.5	…	7.2	6.5	7.1	…	6.7	5.5	7.5	…	6.5	6.6
	General government balance (percent of GDP)	-2.7	-2.8	-1.6	-1.6	-1.6	-1.8	-0.8	-0.8	-0.9	-0.9	0.0	0.1	-0.3	-0.3
	Unit labor cost	3.8	4.3	3.1	5.2	3.4	5.5	2.7	4.2	3.0	4.6	2.6	3.5	2.9	3.8
	Unemployment rate ^3/	7.8	8.0	6.8	7.5	7.0	7.5	6.3	7.2	6.7	7.2	6.0	6.7	6.4	6.7

Sources: National Statistical Service; Ministry of Economy and Finance; and IMF staff projections.

^{^1/}This table corresponds to the text table in page 6 of the staff report.

^{^2/}Authorities’ baseline scenario as specified in the December 2007 SGP update.

^{^3/}ESA95 basis.

Macroeconomic Projections, 2007–10 ^1/

(Percentage changes, unless otherwise indicated)

		2007		2008				2009				2010
		Staff Report	MoF Latest Est.	MoF Baseline ^2/	MoF Revised	Staff Report	IMF Revised	MoF Baseline ^2/	MoF Revised	Staff Report	IMF Revised	MoF Baseline ^2/	MoF Revised	Staff Report	IMF Revised
Real GDP		4.0	4.0	4.0	3.6	3.7	3.3	4.0	3.6	3.5	3.3	4.0	3.8	3.6	3.5
Total domestic demand		4.9	4.6	4.7	3.2	4.4	3.3	4.4	3.5	3.9	3.6	4.3	3.8	4.1	3.8
Net exports (contribution to growth)		-1.7	-1.3	-1.4	-0.2	-1.3	-0.6	-1.1	-0.4	-1.1	-0.9	-1.0	-0.5	-1.2	-0.8
	Exports of goods and services	7.6	5.9	7.3	6.8	6.6	6.0	7.6	7.0	6.6	6.0	7.7	7.1	6.5	6.6
	Imports of goods and services	9.1	7.0	7.8	4.5	7.2	5.0	7.2	5.2	6.4	5.8	7.0	5.7	6.6	6.1
Current account (percent of GDP) ^3/		-14.6	-16.4	-14.4	-14.4	-15.0	-14.8	-14.2	-13.9	-14.8	-14.7	-13.9	-13.5	-14.7	-14.6
Memorandum items:
	Growth of relevant foreign markets	8.4	…	7.5	…	7.2	6.5	7.1	…	6.7	5.5	7.5	…	6.5	6.6
	General government balance (percent of GDP)	-2.7	-2.8	-1.6	-1.6	-1.6	-1.8	-0.8	-0.8	-0.9	-0.9	0.0	0.1	-0.3	-0.3
	Unit labor cost	3.8	4.3	3.1	5.2	3.4	5.5	2.7	4.2	3.0	4.6	2.6	3.5	2.9	3.8
	Unemployment rate ^3/	7.8	8.0	6.8	7.5	7.0	7.5	6.3	7.2	6.7	7.2	6.0	6.7	6.4	6.7

Sources: National Statistical Service; Ministry of Economy and Finance; and IMF staff projections.

^{^1/}This table corresponds to the text table in page 6 of the staff report.

^{^2/}Authorities’ baseline scenario as specified in the December 2007 SGP update.

^{^3/}ESA95 basis.

Greece: Revised Medium–Term Baseline Scenario, 2008–13 ^1/

Sources: National Statistical Service; Ministry of Economy and Finance; Bank of Greece; and IMF staff estimates.

^{^1/}This table corresponds to table 3 in the staff report.

^{^2/}ESA95 basis.

Greece: Revised Medium–Term Baseline Scenario, 2008–13 ^1/

				2008	2009	2010	2011	2012	2013
				Projection
Domestic economy				(Percentage change)
	Real GDP			3.3	3.3	3.5	3.5	3.5	3.5
	Output gap			1.8	1.2	0.9	0.5	0.3	0.0
	Total domestic demand			3.3	3.6	3.8	3.8	3.8	3.8
		Private consumption		3.0	3.0	3.0	3.0	3.0	3.0
		Public consumption		0.2	1.0	1.2	1.2	1.2	1.2
		Gross fixed capital formation		5.8	6.6	7.0	7.0	7.0	7.0
	Foreign balance (contribution) ^2/			-0.6	-0.9	-0.8	-0.9	-0.9	-1.0
		Exports of goods and services		6.0	6.0	6.6	6.7	6.6	6.6
		Imports of goods and services		5.0	5.8	6.1	6.2	6.1	6.3
	Unemployment rate (percent) ^2/			7.5	7.2	6.7	6.5	6.7	6.9
	Employment ^2/			1.2	1.2	1.3	1.2	0.8	0.7
	Unit labor costs (economy wide)			5.5	4.6	3.8	3.5	3.0	2.6
	Consumer prices (HICP), end of period			3.0	2.8	2.6	2.5	2.5	2.5
	Consumer prices (HICP), period average			3.7	2.8	2.6	2.5	2.5	2.5
	GDP deflator			3.7	3.0	2.8	2.7	2.6	2.6
External sector				(Percent of GDP)
	Current account			-13.2	-13.4	-12.9	-11.8	-11.3	-11.2
		Trade balance		-10.6	-10.6	-10.1	-8.9	-8.3	-8.2
			Exports of goods and services	22.5	22.6	22.6	22.4	22.4	22.6
			Imports of goods and services	33.1	33.2	32.7	31.3	30.7	30.8
		Current transfers		1.4	1.5	1.5	1.6	1.6	1.6
		Net income receipts		-4.0	-4.2	-4.3	-4.5	-4.5	-4.6
Public finances (general government)
	Total revenues			41.0	42.0	42.7	42.5	42.4	42.5
	Total expenditures			42.8	42.9	43.0	42.7	42.5	42.5
		Primary expenditures		38.7	38.9	39.1	39.0	38.9	39.1
		Interest expenditures		4.1	4.0	3.9	3.8	3.6	3.4
	Overall balance			-1.8	-0.9	-0.3	-0.3	-0.1	0.0
	Primary balance			2.3	3.1	3.6	3.5	3.5	3.4
	Structural overall balance (percent of potential output)			-2.6	-1.5	-0.7	-0.5	-0.3	0.0
	Structural primary balance (percent of potential output)			1.6	2.6	3.2	3.3	3.3	3.4
	Gross debt			91	88	84	80	76	72
Memorandum item:
	Nominal GDP (billions of euros)			245	261	277	295	313	333

Sources: National Statistical Service; Ministry of Economy and Finance; Bank of Greece; and IMF staff estimates.

^{^1/}This table corresponds to table 3 in the staff report.

^{^2/}ESA95 basis.

Greece: Revised Medium–Term Baseline Scenario, 2008–13 ^1/

				2008	2009	2010	2011	2012	2013
				Projection
Domestic economy				(Percentage change)
	Real GDP			3.3	3.3	3.5	3.5	3.5	3.5
	Output gap			1.8	1.2	0.9	0.5	0.3	0.0
	Total domestic demand			3.3	3.6	3.8	3.8	3.8	3.8
		Private consumption		3.0	3.0	3.0	3.0	3.0	3.0
		Public consumption		0.2	1.0	1.2	1.2	1.2	1.2
		Gross fixed capital formation		5.8	6.6	7.0	7.0	7.0	7.0
	Foreign balance (contribution) ^2/			-0.6	-0.9	-0.8	-0.9	-0.9	-1.0
		Exports of goods and services		6.0	6.0	6.6	6.7	6.6	6.6
		Imports of goods and services		5.0	5.8	6.1	6.2	6.1	6.3
	Unemployment rate (percent) ^2/			7.5	7.2	6.7	6.5	6.7	6.9
	Employment ^2/			1.2	1.2	1.3	1.2	0.8	0.7
	Unit labor costs (economy wide)			5.5	4.6	3.8	3.5	3.0	2.6
	Consumer prices (HICP), end of period			3.0	2.8	2.6	2.5	2.5	2.5
	Consumer prices (HICP), period average			3.7	2.8	2.6	2.5	2.5	2.5
	GDP deflator			3.7	3.0	2.8	2.7	2.6	2.6
External sector				(Percent of GDP)
	Current account			-13.2	-13.4	-12.9	-11.8	-11.3	-11.2
		Trade balance		-10.6	-10.6	-10.1	-8.9	-8.3	-8.2
			Exports of goods and services	22.5	22.6	22.6	22.4	22.4	22.6
			Imports of goods and services	33.1	33.2	32.7	31.3	30.7	30.8
		Current transfers		1.4	1.5	1.5	1.6	1.6	1.6
		Net income receipts		-4.0	-4.2	-4.3	-4.5	-4.5	-4.6
Public finances (general government)
	Total revenues			41.0	42.0	42.7	42.5	42.4	42.5
	Total expenditures			42.8	42.9	43.0	42.7	42.5	42.5
		Primary expenditures		38.7	38.9	39.1	39.0	38.9	39.1
		Interest expenditures		4.1	4.0	3.9	3.8	3.6	3.4
	Overall balance			-1.8	-0.9	-0.3	-0.3	-0.1	0.0
	Primary balance			2.3	3.1	3.6	3.5	3.5	3.4
	Structural overall balance (percent of potential output)			-2.6	-1.5	-0.7	-0.5	-0.3	0.0
	Structural primary balance (percent of potential output)			1.6	2.6	3.2	3.3	3.3	3.4
	Gross debt			91	88	84	80	76	72
Memorandum item:
	Nominal GDP (billions of euros)			245	261	277	295	313	333

Sources: National Statistical Service; Ministry of Economy and Finance; Bank of Greece; and IMF staff estimates.

^{^1/}This table corresponds to table 3 in the staff report.

^{^2/}ESA95 basis.

Greece: Revised Summary of Balance of Payments, 2008–13 ^1/

(Percent of GDP)

Sources: Bank of Greece; and IMF staff projections.

^{^1/}This table corresponds to table 4 in the staff report.

Greece: Revised Summary of Balance of Payments, 2008–13 ^1/

(Percent of GDP)

			2008	2009	2010	2011	2012	2013
			Projection
Current account balance			-13.2	-13.4	-12.9	-11.8	-11.3	-11.2
	Balance of goods and services		-10.6	-10.6	-10.1	-8.9	-8.3	-8.2
		Goods balance	-18.7	-18.9	-18.4	-17.4	-16.9	-16.9
		Services balance	8.1	8.2	8.3	8.4	8.6	8.7
	Income balance		-4.0	-4.2	-4.3	-4.5	-4.5	-4.6
	Current transfers		1.4	1.5	1.5	1.6	1.6	1.6
Capital and financial account balance			13.2	13.4	12.9	11.8	11.3	11.2
	Of which:
		Direct investment	0.1	0.2	0.1	0.1	0.1	0.1
		Portfolio investment	3.4	3.4	3.2	2.9	2.8	2.6
		Other investment	8.3	8.4	8.2	7.3	6.9	7.1
External debt			123.1	126.7	129.7	131.6	132.9	134.1

Sources: Bank of Greece; and IMF staff projections.

^{^1/}This table corresponds to table 4 in the staff report.

Greece: Revised Summary of Balance of Payments, 2008–13 ^1/

(Percent of GDP)

			2008	2009	2010	2011	2012	2013
			Projection
Current account balance			-13.2	-13.4	-12.9	-11.8	-11.3	-11.2
	Balance of goods and services		-10.6	-10.6	-10.1	-8.9	-8.3	-8.2
		Goods balance	-18.7	-18.9	-18.4	-17.4	-16.9	-16.9
		Services balance	8.1	8.2	8.3	8.4	8.6	8.7
	Income balance		-4.0	-4.2	-4.3	-4.5	-4.5	-4.6
	Current transfers		1.4	1.5	1.5	1.6	1.6	1.6
Capital and financial account balance			13.2	13.4	12.9	11.8	11.3	11.2
	Of which:
		Direct investment	0.1	0.2	0.1	0.1	0.1	0.1
		Portfolio investment	3.4	3.4	3.2	2.9	2.8	2.6
		Other investment	8.3	8.4	8.2	7.3	6.9	7.1
External debt			123.1	126.7	129.7	131.6	132.9	134.1

Sources: Bank of Greece; and IMF staff projections.

^{^1/}This table corresponds to table 4 in the staff report.

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Greece: 2007 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Greece

Author: International Monetary Fund

Volume/Issue:: Volume 2008: Issue 148

Publisher:: International Monetary Fund

ISBN:: 9781451816303

ISSN:: 1934-7685

Pages:: 58

DOI:: https://doi.org/10.5089/9781451816303.002

Keywords

Greece: Revised Summary of Balance of Payments, 2008–13 ^1/

(Percent of GDP)

			2008	2009	2010	2011	2012	2013
			Projection
Current account balance			-13.2	-13.4	-12.9	-11.8	-11.3	-11.2
	Balance of goods and services		-10.6	-10.6	-10.1	-8.9	-8.3	-8.2
		Goods balance	-18.7	-18.9	-18.4	-17.4	-16.9	-16.9
		Services balance	8.1	8.2	8.3	8.4	8.6	8.7
	Income balance		-4.0	-4.2	-4.3	-4.5	-4.5	-4.6
	Current transfers		1.4	1.5	1.5	1.6	1.6	1.6
Capital and financial account balance			13.2	13.4	12.9	11.8	11.3	11.2
	Of which:
		Direct investment	0.1	0.2	0.1	0.1	0.1	0.1
		Portfolio investment	3.4	3.4	3.2	2.9	2.8	2.6
		Other investment	8.3	8.4	8.2	7.3	6.9	7.1
External debt			123.1	126.7	129.7	131.6	132.9	134.1

Sources: Bank of Greece; and IMF staff projections.

^{^1/}This table corresponds to table 4 in the staff report.

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