Greece’s 2017 Budget Plan Sticks With Robust Growth Forecast

But analysts say austerity and tight credit conditions are likely to weigh on economy

The Wall Street Journal

By STELIOS BOURAS
Oct. 3, 2016 11:21 a.m. ET
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ATHENS—Greece’s budget plan for 2017 sees the economy rebounding strongly after a seven-year slump, but analysts say continued austerity and tight credit conditions are likely to weigh on its recovery prospects amid uncertainty over the country’s public debt.

Finance Minister Euclid Tsakalotos submitted a draft copy of the budget to parliament on Monday that is expected to be finalized in coming weeks after the country resumes talks with lenders on its reform program.

The 53-page budget sticks with Greece’s previous forecasts that the economy is expected to contract by 0.3% this year before growing by 2.7% in 2017. Many see these targets as too optimistic, saying the economy is now entering a period of stagnation, rather than growth, having shrunk by more than 25% since the debt crisis erupted in 2010.



“Although there are some indications pointing to some stabilization in the economy, tight fiscal policy, difficult credit conditions and muted external growth are expected to limit the recovery in 2017,” said Diego Iscaro, senior economist at consulting firm IHS Global Insight. Mr. Iscaro projects the Greek economy will grow by 0.7% next year.

The latest batch of austerity voted in by Greek lawmakers to secure rescue funding needed to prevent the country from going bankrupt has created a backlog of tax increases and spending cuts that will be implemented in coming months.

Among changes set to take effect in January will be a sharp increase in social security contributions, higher fuel tax and an increased levy on phone bills, while painful labor market reforms could be voted in by the end of the year.

In a bid to sweeten the austerity pill, Greece is eager to show that some form of debt relief is on the cards with officials in Athens saying they expect to overcome objections from Germany-led creditors and a deal could even be finalized in coming months.

The outcome of these debt-relief talks will play a crucial role in determining the economy’s performance and whether investors will be drawn to the country.

“Talks on the restructuring of public debt will play a decisive role on the developments of 2017 as they are a crucial step in restoring investor confidence, the (country’s) long-term credit rating and the credibility of the economy,” said the budget.

Just before the budget was submitted Monday, a group of about 1,000 pensioners had gathered outside parliament to protest against recent cuts to their benefits. Authorities used tear gas to disperse the crowd when a small group tried to push past riot police and reach the Greek premier’s office.

Greece’s steep spending cuts have started to bear some fruit. For 2016, Greece expects its primary budget surplus, which strips out interest payments on government debt, to reach 0.6% of annual economic output, beating the 0.5% target.

For next year, this figure is expected to reach 1.8% of gross domestic product, in line with commitments made in Greece’s bailout agreement, the budget added.

On the jobs front, Greece’s unemployment rate is projected to drop to 22.4% next year from 23.5% this year.

Write to Stelios Bouras at stelios.bouras@wsj.com