Combining policy credibility with a mild fiscal expansion in 2019
Greece's commitment to fiscal soundness has been re-affirmed in 2018, with the primary surplus in General Government in FY:2018 estimated at 3.98% of GDP, exceeding the Enhanced Surveillance Framework's maximum target for a surplus of 3.5% of GDP, for a third consecutive year.
A notable improvement in the State budget primary balance of 1.8 pps is the key determinant of the fiscal outcome in 2018. About two-thirds of the increase in the State budget primary surplus reflects a reduction in primary spending (-2.2% y-o-y or -1.3% of GDP).
The deficit in the public investment budget (PIB) was significantly lower-than-initially budgeted and 0.5% of GDP lower than in 2017, due to the increase in EU funding (81.0% y-o-y in FY:2018 or 0.8% of GDP).
Net revenue of the State budget remains constant as a per cent of GDP in 2018, as lower tax refunds by 0.4% of GDP offset the small decline in tax revenue, mainly due to the stagnant proceeds from personal income tax (0.1% y-o-y and -0.2% of GDP on an annual basis). For 2019, the projection of a 1 pp decline in tax revenue as a per cent of GDP is very conservative and provides room for an overperformance against the respective revenue targets.
The surplus in the social security system remains significant at 1.2% of GDP in 2018 from 1.6% in 2017, with the decline on an annual basis broadly corresponding to the reduction in the transfers from the State budget to the social security funds of 0.3% of GDP during this period.
A set of expansionary measures amounting to 0.5% of GDP will take effect in 2019, corresponding to the recurring part of the fiscal overperformance in previous years. This expansion, in conjunction with a positive carry of about 0.4% from GDP growth trend in 2018, sets the stage for an acceleration in GDP growth close to the Budget target of 2.5% y-o-y in FY:2019.