Stoil Topalov

As the Economist’s 13^th Government Roundtable with the Greek government took place in Athens this past week, we review the Economist Intelligence Unit’s May update to their country report for Greece.

          As confirmed by both the IMF and the European Commission, the EIU expects the budget deficit to be well above the 3% ceiling established by the EU’s Stability and Growth Pact. Specifically, the publication expects the budget deficit to be 6% in 2009 and 6.4% in 2010. In addition to that the level of exports is expected to fall sharply – by 7.2% in 2009 and 2.9% in 2010, due to a fall in demand from euro-zone countries, but also non-EU members like Russia and Turkey. GDP is also forecast to fall by 3.1% in 2009 and 0.7% in 2010. This trails both the world average and the OECD average.

The banking sector will also have significant problems. Even though the majority of the banks have escaped the harsher fates of many of their western counterparts, they will need help as they are heavily exposed in the Balkans. The publication also notes that disagreements between banking executives and the government have impeded the 25bn euro support package from taking effect. In the meantime, other factors showing the slowdown of the Greek economy include a slump in retail prices, a slowdown in the tourism sector, slow credit growth, and a fall in industrial production.

According to economics newspaper Imerisia, tax breaks are costing the Greek budget around 7 billion euro. This amounts to 11.5% of the total tax income forecast for this year’s budget. The IMF, in its report to the economy minister, suggests reconsidering all exemptions and deductions and eliminating many of them.

Around the world, stock markets had a positive week. The Dow Jones gained 2.1% this week closing at 8500.3 points. The FTSE 100 also rose 1.2% to 4438.6 points this week, however, the biggest winner was the Japanese Nikkei, closing at 9522.5 points for a 3.1% weekly gain. In Athens, the stock exchange closed on Friday at 2327.5 points, amounting to a 1.7% weekly gain. In other economic news, oil prices surged above $66 a barrel this week, for the first time since late November 2008. The euro also climbed to its highest levels this year against the dollar, at 1.41 dollars per euro.