Excessive primary surplus deprived economy of 1.2 pct of GDP

A National Bank of Greece analysis issued on Wednesday revealed that the overrun recorded in the primary budget surplus in 2017 cost the economy dearly as it prevented it from making a much needed and originally much anticipated rebound.

The bank’s summarized analysis of the 2017 fiscal data noted that the primary surplus – which amounted to 4.2 percent of gross domestic product, against a target of just 1.75 percent – “had a negative impact on economic activity in 2017 amounting to -1.2 percent on an annual basis.”

The report also put the actual growth of the economy last year at just 1.3 percent, against an official estimate of 1.4 percent.

NBG’s analysis coincided with a report released on Wednesday by the Financial Experts Council (SOE), which is headed by Alternate Finance Minister Giorgos Houliarakis, and agreed that the primary surplus overrun is attributed to the unexpectedly high surpluses of the social security entities. The SOE report notes that the primary budget surplus even exceeded its own forecast, which was for 3.5 percent of GDP.

For this year the NBG analysis said that if the bailout program target of a primary surplus of 3.5 percent of GDP is met, or even the 3.8 percent estimate of the 2018 budget, the impact on the economy will be favorable, as “the boost to economic activity will amount to at least 0.4-0.7 percentage points of GDP,” given that there will be a relative fiscal easing in comparison with the 2017 reading of 4.2 percent.

The NBG analysts did add, however, that “the high primary surplus strengthens the reliability of the fiscal adjustment ahead of the completion of the third bailout program.”

The trends seen last year are expected to continue this year and next, according to the NBG report, with the social security funds experiencing an increase in revenues and a drop in expenditure. Beyond social security, revenues also grew thanks to confiscations and the settlement of past debts, while expenditure remained stagnant.