The Greece economy began to substantially adjust, as the data in August on the deficit are ahead of the fixed targets, according to a Goldman Sachs report quoted by Capital.gr. The budget deficit in the first eight months of this year was€ 1.3 billion, or around 0.6% of GDP, against a target of €4.2 billion. In the same period of the last year, the budget deficit was about €6 billion.
Reducing the budget deficit occurred despite a decline in revenues of €2 billion, caused mainly by cyclical factors. Most of the savings came from reduced spending, but also by cutting public investment. Data will be reviewed at the end of this year, but Goldman Sachs expects no substantial changes.
According to the European Union, labor costs decreased to a unprecedented level in Greece since 2000, following substantial reforms of the labor market, with direct consequences on private sector wages. Therefore, Greece has recovered most of the lost competitiveness over the last decade, at least in terms of employment.
Goldman Sachs also noted that the balance of goods and services trade is improving, with a monthly deficit around €600 million, well below the mid 90s levels, before Greece entered the monetary union. At the time of maximum economic imbalance, the monthly trade deficit of Greece was €2.3 billion.
The bank also notes that financial markets react positively to these developments, as the Athens stock market advanced in July by 28.5%. In the past two months, yields of restructured Greek bonds fell by 5 percentage points. The market is also supported by recent encouraging statements from eurozone leaders on the possibility of extending the term of the adjustment program in Greece.
Risk premiums for local assets still remain at a high level, overall, and do not fully reflect the progress and the possibility of an improvement in the coming months, as the reforms are beginning to bear fruit.
So far, the Greek government has signaled that it wants to do everything possible to avoid a collapse of the economy and the eurozone leaders seem to want to continue funding the country, if Greece will comply with the commitments, according to Goldman Sachs.
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