Macro roundup: Fiscal pillar

The government should be careful not to cut support for the economy too soon

We haven’t paid too much attention here to the state budget execution so far this year, which in itself is a sign of how much attitudes have changed in terms of acceptance of the need for an active fiscal policy.

Still, with the government preparing 2.5 billion euros of what it plans to be the last round of pandemic support measures of the economy in June, it’s worth checking in on the latest figures for January to April, which came out this week.

Already, the government has announced 15 billion euros in relief measures this year, compared with the 7.6 billion euros initially budgeted.

Despite that, the primary deficit in the first four months of the year, at 6.2 billion euros, is only 954 million euros bigger than the target laid out in the 2021 budget plan passed in December.

On the revenue side, the state has so far this year received 467 million less than budgeted, including 179 million euros in fewer taxes.

Of the overall shortfall, 300 million euros is money that the state was supposed to receive in March of the Hellinikon privatisation project. But that decades-old saga should be wrapping up now, with the money likely to land soon.

In the first third of 2021, the primary budget deficit has already reached 60 percent of its total for the year. Some of the stabilisation in the planned trajectory of the budget deficit is due to the switch in emphasis in the second half of the year from emergency support to money that is slated to start flowing from the EU recovery fund.

Nevertheless, now that some of data is suggesting there could be a stronger than expected economic recovery in the second quarter, it would be a big mistake if the Finance Ministry takes that as an opportunity to try to get the budget back on track by withdrawing support too soon for sectors of the economy that still need it.

As ECB board member Isabel Schnabel pointed out in a Reuters interview:

The recovery still depends on continued policy support. A premature withdrawal of either fiscal or monetary support would be a great mistake.

Other data

  • The European Commission’s economic sentiment indicator showed a considerable improvement for Greece in May, with the index rising to 108.6 from 97.9 in April. There were improvements in all sectors — except construction, the one sector that had generally done very well through the pandemic. In industry, confidence was at its highest this month since 2007.

  • The unemployment rate in February dropped to 15.9 percent from 16.1 percent in January.

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Next week’s key data

Monday, May 31:
  • April bank lending and deposits (Bank of Greece)

  • March retail sales (Elstat)

Tuesday, June 1:
  • May manufacturing PMI (IHS Markit)

Friday, June 4:
  • First-quarter national accounts data (Elstat)

Elsewhere on the web

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