The economic recovery retained its positive trajectory in the second quarter (Q2) of 2019 with GDP growing by 0.8% quarter on quarter (qoq) and 1.9% year on year (yoy), mainly led by a rebound in consumption and net exports. Recent soft data indicate that the economic expansion is expected to gather pace in the second half of the year and close around 2% for the whole year.
During his speech at the Thessaloniki International Fair (TIF), the Prime Minister announced a set of measures aiming to ease the tax burden on companies and individuals including a reduction in the corporate and dividend tax rate to 24% (from 28%) and to 5% (from 10%) respectively as well as the introduction of a new tax scale with a tax rate of 9% (from 22%) for individuals’ income up to EUR 10,000. Furthermore, the Prime Minister outlined a reduction in the social security contributions by 5 percentage points (pp) for full-time employees starting from July 2020 until 2023.
Tax revenues outperformed target in July and August extending the year to date overperformance to EUR 468 million in the January to August period, mainly led by higher than expected VAT revenues. Taking into account the revenue performance so far this year and recent economic developments, the Ministry of Finance (MoF) is confident that the primary surplus target of 3.5% of GDP for 2019 will be met.
In cooperation with BoG and agreement with the European institutions, capital controls have been fully lifted as of September 1, which constitutes a significant step towards the normalisation of the domestic economy. In addition to the structural effects of normalising credit conditions, the abolition of capital controls is anticipated to have a significant signalling effect with a positive impact upon expectations and risk premia. On September 16, the MoF submitted an official request for the partial early repayment of IMF loans.
