MoF unveiled yesterday the 2013 budget and the 2013-16 Medium-Term Fiscal Strategy (MTFS). The key difference of MoF current forecasts compared to those included in the draft budget tabled to parliament on October 1 involves a deeper recession in 2013 (at 4.5% from 3.8% before) as well as a downward revision of historical GDP data (announced by ELSTAT on October 5) with a consequent worsening of all relative-to-GDP, particularly debt, ratios.

Regarding the key macro assumptions we highlight:

• A contraction of GDP by 6.5% in 2012 and a further 4.5% in 2013 (draft budget: -3.8%) incorporating: a decline of private consumption by 7.7% in 2012 and 7.0% in 2013, a decrease in public consumption by 6.2% in 2012 and 7.2% in 2013 and a further decline in investments by 15.0% in 2012 and 3.7% in 2013. It is noteworthy that a marginal rebound of GDP by 0.2% is expected in 2014, accelerating to 2.5% in 2015 and to 3.5% in 2016.

• Nominal GDP is seen slipping to €194.0bn (draft budget: €200.9bn) in 2012, to €183.0bn (draft budget: €193.1bn) in 2013 and to €182.7bn in 2014, increasing thereafter to €187.8bn in 2015 and to €196.5bn in 2016. The aforementioned lower GDP forecasts, particularly for 2012, also reflect a downward revision of 2011 GDP by €6.6bn to €208.5bn announced by ELSTAT on October 5.

• Inflation is estimated to ease to 1.1% in 2012 turning negative to -0.8% in 2013 and -0.4% in 2014 and then to increase to 0.6% in 2015 and to 1.1% in 2016.

• Unemployment rate is expected to reach 22.4% in 2012 (from 16.5% in 2011) slightly increasing to 22.8% in 2013, easing thereafter to 21.4% in 2014, to 19.7% in 2015 and to 17.1% in 2016. Note that according to the latest official data, unemployment rate stood at 25.1% in July with a rising trend over the first half of 2012.

We summarise below the key fiscal forecasts incorporated in the 2013 budget and MTFS. Note that 2013 projections incorporate targeted policy interventions of €9.4bn (the part of the currently negotiated with the troika fiscal package of €13.5bn that refers to 2013) the bulk of which (€7.6bn) stems from cost cutting and €1.8bn from additional tax revenues. In particular:

• General government (gg) deficit is estimated at €9.4bn or 5.2% of GDP in 2013, down 26.7% y-o-y compared to €12.9bn or 6.6% of GDP in 2012. It is noteworthy 2013 draft budget (tabled to parliament on October 1), which was based on non-revised historical GDP data and projected lower recession in 2013, forecasted gg deficit at €13.3bn (6.6% of GDP) in 2012 and at €8.05bn (4.2% in 2013). Furthermore, gg deficit is targeted to ease to 3.2% of GDP in 2016.

• General government primary surplus is seen at €0.75bn or 0.4% of GDP in 2013 compared to deficit of €2.4bn or 1.2% of GDP in 2012. According to draft budget, gg primary balance was anticipated at -€2.8bn (-1.4% of GDP) in 2012 and at €2.2bn (1.1% of GDP) in 2013.

• State budget deficit is forecasted to reach €11.2bn or 6.1% of GDP in 2013, down 31.8% y-o-y in absolute numbers, while 2012 figure is seen closing at €16.3bn or 8.4% of GDP. Furthermore, State budget primary deficit is projected at €2.2bn or 1.3% of GDP in 2013, down 49.9% y-o-y in absolute figures, with 2012 item anticipated at €4.6bn or 2.4% of GDP.

• General government debt is seen reaching €340.6bn or 175.6% of GDP in 2012 (down €15bn or 4.2% y-o-y in absolute numbers) and is anticipated to increase to €346.2bn or 189.1% of GDP in 2013 (up 1.6% y-o-y). It is noteworthy that although absolute figures remain unchanged compared to draft budget, the respective ratios relative to GDP are now worse than previously expected (169.5% and 179.3% respectively) by up to 10 percentage points, due to the revision of historical GDP data and deeper recession in 2013. Note that the drop of debt by only €15bn in 2012, despite the positive impact from PSI of €106bn, reflects an increase of debt by: €48.5bn from bank recapitalization, €15.0bn from gg cash deficit, €20.7bn from losses of local governments and social security funds due to PSI, €3.5bn from the payments of arrears to the private sector as well as change in the cash reserves by €2.1bn. Note that gg debt is targeted to reach 191.6% of GDP in 2014, 190.5% in 2015 and 184.9% in 2016.

• Ordinary revenues are seen retreating 5.6% y-o-y in 2013 (2012: -5.4%) to €46.7bn, mainly reflecting a drop in direct and indirect taxes by 4.6% y-o-y to €19.9bn and by 6.8% to €24.4bn respectively. Note that net revenues are expected to decline by 2.9% y-o-y to €46.3bn (25.3% of GDP), also reflecting a drop in tax refunds by 21.4% to €2.9bn and a rise in non-ordinary revenues by 28.7% to €2.4bn..

• Expenditure is estimated to slip by 9.8% y-o-y to €55.8bn in 2013, after easing 11.8% y-o-y in 2012, resulting from: a) a drop in primary expenditure by 6.2% to €44.7bn (draft budget: -4.4%), mainly reflecting a further decline of wages and pensions by 10.5% (2012: -3.8%) to €17.5bn and grants to social security grants by 7.4% (2012: -7.8%) to €16.3bn and b) Interest payments down 28.2% y-o-y to €11.7bn in 2012 and by a further 24.2% y-o-y to €8.9bn in 2013.

On the privatisation front, MoF anticipates total revenues of €9.5bn by YE ’16, excluding the estimated €1.4bn by YE’12, which mainly involve sale or development of state-controlled enterprises and real estate development. In particular for 2013, state-asset sales revenues are anticipated at €2.59bnand mainly incorporate: the sale of OPAP (33%), Hellenic Petroleum, Public Gas Corporation (DEPA), Hellenic Gas Transmission System Operator (DESFA), Hellenic Post and State Lottery Tickets. In 2014, the targeted revenues of €2.35bn, include the sale of PPC (17%), Athens Water utility, Thessaloniki Water utility, development of Hellinikon (former Athens airport) and Egnatia Odos, extension of the concession and sale of Athens International Airport (AIA). Furthermore, privatisation proceeds are estimated at €1.14bn in 2015 and €3.44bn in 2015, mainly stemming from the concession of Egnatia Odos, development of Hellinikon, AIA, real estate, marines and mobile telephony licences as well as disposal of bank shares (resulting from the upcoming bank recap).