April 1, 2019 / 10:30 AM / 22 days ago

UPDATE 1-Bank of Greece sees modest economic growth, warns against tough budget targets

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ATHENS, April 1 (Reuters) - Greece’s central bank said it expects the economy to grow 1.9 percent this year, less than the government is projecting, and it said the expansion could be hindered by high taxes and by targeting big primary budget surpluses.

The Greek economy is recovering after a nine-year debt crisis that shrank it by a quarter. The country reached the end of its third international bailout programme last August and is now relying on bond markets to refinance its debt.

“2019 will be another challenging year for the Greek economy,” Bank of Greece Governor Yannis Stournaras said on Monday at the bank’s annual shareholder’s meeting.

In its yearly report the bank forecast that gross domestic product (GDP) would increase by the same 1.9 percent that it recorded last year, “despite the significant slowdown of euro zone growth.”

That is below the government’s forecast of 2.5 percent.

Stournaras said high taxation coupled with high primary budget surpluses could hinder the recovery.

In the wake of its bailouts, Athens has committed itself to achieving big primary budget surpluses, which exclude debt-servicing costs, of 3.5 percent of GDP until 2022, and 2.2 percent until 2060.

Maintaining large surpluses over an extended period of time “when accompanied by high taxation, weighs on growth and consequently on debt sustainability,” Stournaras said.

The central banker also cautioned the government against higher spending in the run-up to general elections later this year, saying that could put public finances at risk. (Reporting by George Georgiopoulos; Writing by Karolina Tagaris; Editing by Hugh Lawson)

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