The public accounts for 2022 are progressively unveiled by the national authorities, and one observation is emerging for Southern Europe countries, whether in Portugal, Greece, or Spain: public finances improved again significantly last year. Despite the energy crisis and the governmental measures put in place to deal with this crisis, the upturn in activity and in employment in these countries, which was better than expected, has contributed to a strong increase in tax revenues.
Higher consumer price inflation and, to a lesser extent, wage inflation have also boosted incomes. Public expenditure increased steadily, with the measures to offset the inflationary shock, but less strongly than income.
In a nutshell, in Greece, the primary deficit fell below EUR 300 million last year, against EUR 1.5 billion in 2021. It will be necessary to wait until March 7th for the GDP figures for Q4 to be unveiled, but it is already clear that the deficit settled below 1% of GDP, compared to 5% in 2021.
In Portugal, the primary balance recorded a surplus of nearly 3 billion euros last year, which should account for more than 1% of GDP, while the country recorded a deficit equivalent to 0.8% of GDP in 2021. In Spain and Italy, the trend is also clearly towards an improvement in budget balances If we include interest payments, the budget balances remain in deficit, but they are also down significantly.
The recovery in economic activity and especially in employment has been a major contributor to this improvement. Employment grew in 2022 by more than 5% in Greece, almost 4% in Spain and 2.0% in Portugal.
These improvements, better than expected, give the authorities more leeway to pursue support measures in 2023, particularly in a context where the trajectory of inflation in the euro zone remains uncertain. Strong measures have already been taken, in particular with a significant increase in the minimum wage, by 8% in Spain or 6.4% in Portugal. This minimum wage was increased by almost 10% in Greece during 2022 and a further increase is expected in April.
The marked slowdown in activity expected in 2023 in the euro zone will obviously not spare the countries in the south of the monetary union. However, and as the European Commission reminds us in its latest forecasts dated February 1, these countries would once again record growth rates above the euro zone average, which would stand at 0.9%.
After the health crisis which led to a sharp rise in public debt throughout Europe, fears of a new rebound following the energy shock were legitimate and are even more important for highly indebted countries such as those in the south of Europe. This scenario has so far not materialized.
