By 2026 inflation will converge towards the ECB’s target (2%), but remain slightly above it
The GDP growth rate is expected to take shape to 2.3% in 2024, accelerating to 2.5% in 2025 and easing slightly to 2.3% in 2026 and 2% in 2027according to its current forecasts Bank of Greece.
The main component of economic growth is estimated to be the consumptionwhile the investment and exports will continue to contribute positively. Overall, the net contribution of the external sector to GDP will be slightly negative in the coming years, as strong investment activity and stronger consumption are expected to cause imports to grow at rates matching those of exports.
THE inflationbased on the Harmonized Index of Consumer Prices (HICP), is expected to be 3% in 2024, from 4.2% in 2023, reflecting the large slowdown in food inflation. By 2026 inflation will converge towards the ECB’s target (2%), but remain slightly above it. Inflation in services is expected to be more persistent than inflation in other HICP components, mainly reflecting expected increases in labor wages. Finally, core inflation is expected to ease significantly to 3.5% in 2024 and 3.1% in 2025, reflecting the deceleration mainly in non-energy industrial goods inflation.
Risks and uncertainties
The risks surrounding the Bank of Greece’s macroeconomic forecasts for growth are mainly on the downside and are linked to: (a) a possible worsening of the geopolitical crisis in Ukraine and the Middle East and its effects on the international economic environment, (b) strengthening of trade protectionism internationally, (c) a lower than expected rate of absorption and utilization of RRF funds, (d) intensifying tightness in the labor market and potential wage pressures, (e) slower than expected implementation of the necessary reforms and (f) potential natural disasters due to the climate crisis.
Progress
The Greek economy has has achieved remarkable success in recent years and has proven to be highly resistant to various external disturbancessuch as the COVID-19 pandemic, the energy crisis and the war in Ukraine and the subsequent rise in inflation. The growth rate of the Greek economy is higher than the corresponding EU average rate from 2019 onwards, resulting in the acceleration of the real convergence of GDP per capita with the average European level.
Employment is growing and the unemployment rate has fallen to single digits despite a very significant increase in the minimum wage. As a consequence, disposable income is increasing and the proportion of the population at risk of poverty and social exclusion has decreased between 2019 and 2023. The prudent fiscal policy pursued in recent years and efforts to combat tax evasion are paying off, as high primary surpluses are achieved without the need to take restrictive measures and the public debt as a percentage of GDP is scaled back.
The positive course of the economy in recent years resulted in the upgrading of the credit rating of the Greek State in the investment category. The confirmation of the progress that has been made is also reflected in the recent upgrade of the rating of Greek government bonds to BBB from BBB- by the rating agency Scope Ratings.
In conclusion, increasing overall productivity through reform and innovation, together with increasing investment and labor force participation, is key to boosting economic growth and improving living standards. However, despite the commitment we must show as a country in implementing the required reforms, the response to new global trends and challenges cannot come from each country individually. Instead, a common approach, alignment and cooperation at European level is needed based on the proposals of the recent Letta report on the necessity of completing the Single Market and the Draghi report on the future of European competitiveness.
A key condition to address the gap in innovation, productivity and competitiveness and to secure the sovereignty, security and resilience of Europe is the coordination and joint action of European partners, making use of the successful experience of the European recovery instrument NextGenerationEU.
