IMF cuts 2018 growth forecast to 2 pct

Fund is expected to push for stricter fiscal policy in 2019, while debt-easing measures remain on back burner

The International Monetary Fund has undercut the official budget forecast for 2.5 percent growth this year, speaking of just 2 percent in its World Economic Outlook, curtailing the government’s hopes for a swift recovery. It also slashed the official estimate for 2.5 percent in 2019 to just 1.8 percent.

These forecasts come just ahead of tomorrow’s Spring Meeting of the IMF, with very low expectations for decisions on measures to ease the Greek debt – to allow the Fund’s participation in the Greek program.

The IMF further projects a 0.8 percent current account deficit for this year, against a previous forecast of just 0.1 percent, while inflation is seen at 0.7 percent in 2018 (from 1.3 percent previously) and 1.1 percent in 2019.

What could amount to a major problem for Greece, given the new forecasts, is the possibility that the IMF will insist on bringing forward the reduction of the tax discount to January 2019 without allowing the offsetting measures that would ease the pressure on taxpayers.

However, in the medium term the Fund has raised its outlook on Greek growth: While its previous five-year growth forecast (for 2022) was for just 1 percent, now it foresees an economic expansion of 1.9 percent by 2023; the midterm outlook is a decisive factor for the sustainability of the Greek debt and may signal the IMF’s intention to strike a deal with the eurozone on debt-easing measures.

The Fund’s estimates create a framework for Friday’s meeting of the so-called Washington Group (representatives of Greece’s creditors), who remain divided on how to tackle the Greek debt matter. “On a technical level this is a very complex issue,” a eurozone official told Kathimerini, arguing that even at the April 27 Eurogroup meeting in Sofia it is unlikely that any decisions will be made. “The IMF will have to show it is prepared to yield more ground,” he added.

Friday’s talks should also clarify the position of new German Finance Minister Olaf Scholz, and reach at least some conclusions on a debt-easing formula to ensure the IMF is on board when Greece stages its full return to the markets.