Greece's government said on Friday it expected the economy to flatline this year and shrink less than previously forecast in 2016, as it finalised a budget likely to heap more austerity on a long-suffering public. The programme, released a day after parliament approved reforms demanded by Greece's creditors in exchange for fresh bailout funds, forecast zero growth for 2015 rather than minus 2.3 percent and cut the predicted contraction for 2016 to 0.7 percent from 1.3 percent.
The budget maintained a primary surplus target - excluding debt servicing - for next year of 0.5 percent of gross domestic product, which Athens says will allow it to press ahead with a social programme. But it pegged social welfare at just 100 million euros, while outlining 5.7 billion of spending cuts including 1.8 billion from pensions and 500 million from defence.
Privatisation revenues will also be lower than hoped, according to the plan. The leftist-led government of Prime Minister Alexis Tsipras is under increasing pressure to deliver tangible benefits to a bailout-weary public in exchange for having signed the country up to a third rescue package in July. His parliamentary majority shrank to just three seats on Thursday, after two dissenting lawmakers were expelled for not backing the bailout bill, including regulation on home foreclosures.
He was re-elected in September on promises to implement the terms of a bailout of up to 86 billion euros while mitigating its harshest consequences. "We are submitting the budget amid adverse economic conditions but the prospects are very positive," the finance ministry said. "The 2016 budget is a small but important step for the implementation of government policy in coming years." With the impact of capital controls imposed in June to stem a deposit outflow milder than expected, economists say the government's improved GDP forecast for 2016 is realistic.
But with many seeing a recession of around 0.5-0.6 percent this year, the 2015 revision looked optimistic. Tsipras' priorities are to successfully conclude the first review of the new bailout and the recapitalisation of Greece's ailing banks, so that he can then start talks with its lenders on debt relief. Greece also wants to complete a series of privatisations to help it cut a debt seen rising to 187.8 percent of GDP next year from 180.2 percent in 2015. It is aiming for privatisation revenues of 1.9 billion euros in 2016, the budget plan said, lower than the 3.7 billion euro target in the bailout.
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