By Thanasis Adamopoulos

 

 

Greece is expected to enjoy one of the highest GDP growth rates among European countries this year and to maintain positive growth rates in 2023 despite the international turmoil, the consequent energy crisis, the high inflation rate and rising interest rates.

 

The Greek economy is strongly supported in this course by a spectacular recovery in tourism this year, with arrivals nearing 2019 record levels and travel receipts expected to surpass that level in 2022, a strong export performance (although imports remained high deteriorating the country's trade balance) and a spectacular rise in investments.

 

Greek economic performance comes in contrast to a bleak international outlook, with the International Monetary Fund saying it expected more than a third of the global economy to fall into recession this year or in 2023. At the same time, Greece manages to improve its fiscal condition despite increased spending in financial support measures to households and enterprises to address increased energy costs. The government is expected to show a small primary deficit this year and to return to primary surpluses from 2023, according to both the draft state budget provisions and forecasts made by the IMF on Wednesday. More specifically, the Fund’s forecast is that the GDP will grow by 5.2% this year, against the government’s forecast of 5.3%, although in the fourth quarter it estimates that growth will be limited to 0.7% on an annual basis. The IMF forecasts the Greek economy to grow by 1.8% (2.1% according to budget estimates), lowering its previous forecast of 2.6%. The economy is expected to receive more boost from increased investments of the Recovery Fund.

 

According to the Foundation for Economic & Industrial Research - IOBE - investments are expected to exceed this year's performance, rising by 10.5%, while consumption is projected to slow hit by high inflation.

 

Greece is focusing its efforts to attract foreign direct investments by utilizing funds from the EU's Recovery and Resilience Fund to finance projects in green energy and the digitalization of the economy. The government has already secured funds to finance projects related with the digital transformation of public services and has made good progress in attracting foreign investments by large IT groups in setting up data centers in the country. Absorption of EU funds will be critical in maintaining high positive economic growth rates in the future as the country tries to change its economic model after the economic crisis of the previous decade.

 

Greek Finance Minister Christos Staikouras, addressing a closed-door meeting with IMF Managing Director Kristalina Georgieva in Washington, said that sustaining social cohesion was a key condition to resolving the energy crisis successfully. The Greek minister outlined six policy priorities that must be implemented:

 

- Coordination of national policies toward a price cap in the natural gas wholesale market

 

- Using excessive profits of energy companies to support society, as Greece is doing to subsidize household and business energy bills

 

- Financial incentives and a media campaign to voluntarily reduce energy demand and to increase efficiency in its consumption

 

- Guaranteeing that support measures will remain temporary, targeted, and adequately adapted to national economies' needs

 

- Boosting collaboration with social partners so that inflation on salaries and prices does not affect job occupation rates, and

 

- Further promoting reforms and investments that contribute to the green transition and boost investments, jobs, and productivity.

 

However, these current positive trends could be jeopardized by geopolitical and economic uncertainties, currently hitting Europe. Risks to these forecasts have increased. On the downside, they are linked to the tourism sector in light of the uncertain spending power of incoming tourists and increased geopolitical tensions in the region. On the upside, potentially more positive labour market dynamics could provide stronger-than-assumed support to household income and thereby to private consumption going forward.