Greek Budget targets on track as recession pushes down prices

Greece reported its budget deficit was on track to meet targets set by foreign lenders, whose inspectors arrived in Athens on Monday to measure progress under the country’s bailout programme.

Athens more than halved its central government primary budget gap, which excludes local authorities, social security entities and interest payments, in the first five months of the year, as it chopped public spending and investment.

Recession pushed consumer prices down for a third straight month in May, in a sign that an internal devaluation is gaining ground and potentially making the economy more competitive. However, data showed industrial output declined 1.8 per cent in April.

The central government primary gap shrank to €1 billion – a quarter of an interim target of €4.2 billion – boosting the government’s chances of achieving a surplus that would allow lenders to offer more debt relief under its EU/IMF bailout.

“The country’s fiscal picture has improved in the five-month period and reaching a primary budget surplus this year is attainable,” Deputy Finance Minister Christos Staikouras said.

Chief inspectors from the troika of lenders – the European Union, International Monetary Fund and European Central Bank – were in Athens on Monday to continue a review of Greece’s fiscal adjustment and agreed to reforms before paying out more aid.

“We discussed reducing the value added tax on eateries, a draft bill on over-indebted households and reducing the public sector,” a finance ministry official said.

However, underlining the difficulties of raising funds through privatisation,  Greece failed to attract any binding bids for natural gas company DEPA, two Greek officials close to the sale said.

With the economy shrinking at a 5.6 per cent annual pace in the first quarter, consumer prices were pushed down for the third month in a row in May, providing some relief to households hit by the deep slump and wage cuts.

Consumer prices fell 0.4 per cent year-on-year in May, turning Greece’s inflation differential versus the eurozone negative.

Economists expect the trend to continue this year.

“The slow adjustment of the price level to other trends in the economy continues,” said economist Nikos Magginas at National Bank.

Inflation in the 17 countries sharing the euro was 1.4 per cent in May.