The Greek economy is proving resilient to rising funding costs and geopolitical tensions in Europe. The country is expected to post economic growth once again above the eurozone average in 2024. Real GDP grew by 2.0% in 2023 as an annual average and by 0.7% q/q in Q1 2024, driven by private consumption and investment. Except in real estate, inflationary pressures have eased and fuelled purchasing power gains which, with rising employment, are supporting private consumption, the weight of which in GDP reached a new record in Q1 2024 (76.9%). Because of its size and dependence on the external market, the country nevertheless remains very exposed to economic developments in Europe as well as to the energy market, and oil in particular.
On 5 June 2024, Eurobank Ergasias Services and Holdings, National Bank of Greece, Alpha Services and Holdings, and Piraeus Financial Holdings (in that order the first to fourth largest Greek banking groups by CET1 capital) were authorised by the European Central Bank to pay out a weighted average of 24% of their 2023 net income attributable to Equity Holders. This payout, totalling EUR 875 million, 93% of which is in the form of dividends, is the first of its kind since 2008 for these banks, which between them account for some 90% of the Greek banking system’s total assets.
Greece is expected to enjoy economic growth once again in 2024, but activity showed signs of slowing down in the second half of 2023. Real GDP stagnated in Q3 2023 and employment fell by 0.5% q/q. While strong tourism activity, against a backdrop of high inflation, is boosting tax revenue, its impact on real GDP is more muted. The sharp drop in the unemployment rate (which is now below 10%), the drastic improvement in public finances and the decline in public and private debt testify to Greece’s solid recovery, which has been welcomed by the rise in equity and bond markets, and by the sharp tightening of spreads between Greek sovereign debt and the German Bund
Public deficits in Greece, Portugal and, to a lesser extent, Spain, dropped significantly in 2022. According to Eurostat’s preliminary results – published on 21 April – the primary deficit nearly halved in Spain (-2.4% of GDP), it was erased in Greece, while Portugal once again posted a surplus (1.6% of GDP). In Greece and Portugal, the public deficit fell below the 3% GDP limit set by the Growth and Stability Pact, with which they had already realigned between 2016 and 2019. Although down sharply, the deficit in Spain remains significant, at 4.8% of GDP.Better-than-expected growth in activity and employment and high inflation generated strong tax revenues, which more than offset the rise in spending to cushion the inflationary shock
Despite the significant rise in inflationary pressures, the Greek economy continued to grow quickly during the first half of 2022, at a rate of 4.1% over the period. Nonetheless, real GDP fell back 0.5% q/q in Q3 despite tourism activity holding up well and the labour market being resilient. Indeed, the unemployment rate dropped during Q3 2022 (-29k), hitting its lowest level since December 2009. Almost 80% of the rise in unemployment recorded during the economic crises in 2008 and 2011, which ran from autumn 2008 to spring 2013, was wiped out. As a result, even though it is still very high, the unemployment rate fell below 12% in October (11.6%)
After surging above 10% this spring, inflation will be the main headwind hampering Greek GDP growth in 2022. Yet the economy has proven to be resilient so far. Unemployment has been at the lowest rate since 2010, and GDP has rebounded robustly since the end of lockdown measures in 2020. A recession is unlikely this year, especially since tourism is primed for a solid summer season. On 20 August 2022, Greece will officially exit the European Commission’s enhanced economic surveillance programme, which it entered in June 2018. In May, the country also repaid the last of the IMF loans (EUR 1.9 bn) contracted during the 2011 crisis. Eleven years later, Greece is taking another step towards the normalisation of its economic system.
The Greek economy has surprised on the upside so far in 2021. Real GDP growth is expected to exceed 7% this year. The unemployment rate has fallen to 13% in September. This improvement has allowed the banking sector to continue its clean-up, with a non-performing loan ratio close to the 20% threshold at the beginning of the summer. Difficulties on the economic, social and banking front remain amongst the most pressing in the European Union. This said, unless there is a further complication on the health front, Greece will go into 2022 on a much better basis than in previous years.
The Greek economy is recovering relatively quickly from the Covid shock of 2020, judging by the GDP and employment figures released in early September. Real GDP grew 3.4% q/q in Q2 and was 0.6% higher than pre-Covid levels. Since the beginning of the pandemic, Greece has reported the fourth strongest rebound in activity among the 19 Eurozone member countries. Even though household consumption remained fragile in Q2 (+0.9% q/q) due to health restrictions, investment was once again solid (+4.3% q/q). Employment has also reached levels unseen for the past 10 years. Although these figures are encouraging, they nonetheless fit within a health environment that is still uncertain, with a vaccination rate in the country far below the EU average
The Greek economy is proving resilient, with the recovery through to Q1 2021 being faster than in most other Eurozone members. This has been driven primarily by the very significant increase in goods exports. The spread of the Delta variant in Europe represents a threat to the recovery in the tourism sector, which is essential to bolster growth and employment over the coming months. Pending this, the labour market shows continued fragility. The unemployment rate climbed to 16.3% in Q1, whilst the number of inactive workers jumped, partly due to the effect of rising numbers of workers on temporary unemployment
Greece’s economic recovery will be fraught with uncertainty in 2021. The Covid-19 hit to activity could last longer in the tourism industry – a key sector for the country – than in other sectors. The decline in tourist inflows in summer 2020 has limited significantly the rebound in Q3 GDP, which was much weaker than in other European countries. Some confidence indicators, particularly regarding the unemployment outlook, have worsened during the autumn. The conservative government plans to use the large amounts of money allocated by the European recovery fund to finance its stimulus plan, details of which will be finalised early next year. Despite that, public debt is likely to remain above 200% of GDP by the end of 2021, which is very worrying from a long-run perspective.
Although the second wave of the epidemic appears to have peaked in mid-November, the economic outlook, particularly for the labour market, is worrying in Greece as it is in other countries. The consumer unemployment expectations index, published by the European Commission, is deteriorating again, and posted in November its worst reading since August 2013. The hard unemployment data from the Greek statistical service are traditionally lagging: the latest data are for August. Despite managing relatively well the epidemic, the Greek economy has taken a sizeable hit due to the steep decline in tourism, a slowdown that could extend beyond the epidemic phase and hold back the recovery in 2021
Despite successfully managing the Covid-19 pandemic, Greece will not avoid a severe recession in 2020. The tourism industry – which accounts for nearly 20% of the country’s GDP – offers no guarantee for a solid recovery. The prospect of a resurgence in contamination in Europe will weigh on the tourism sector in the coming months. The Greek banking system will further weaken, and public debt will rise sharply. That said, the European Central Bank (ECB) has launched the Pandemic Emergency Purchase Programme (PEPP) in March, which allows the ECB to purchase Greek sovereign debt. This has kept a lid on sovereign rates. This difficult context may entice the government to draw a recovery plan that targets strategic sectors less linked to the tourism industry.
Supported by catching-up effects, the Greek economy managed to accelerate slightly despite a slowing European environment. Confidence indices have improved strongly and the Greek state has successfully returned to the capital markets. The new centre-right government is seeking to cut taxes on labour and capital without sacrificing fiscal discipline. The recovery will be a long process, but it is on track.
Greece is a parliamentary republic. Intra-EU trade accounts for 57% of Greece’s exports (mostly Italy and Germany); outside the EU Turkey and the United States are important ecnomic partners.The economy has been badly hit in 2020 particularly due to a collapse in tourism activity, which represents the most important sector in Greece. Prior to the COVID-19 epidemic, the Greek economy was still recovering from its public debt crisis that engulfed the country into a sharp recession (2011-13). This had forced the government to adopt a combination of tax increases, spending cuts and other severe austerity measures. Unemployment remains stubbornly high and the level of GDP per capita (adjusted for purchasing power parity) considerably below 2008 levels. Bank balance sheets were still significantly impaired, with the highest level of non-performing loans in the European Union. Nevertheless, past labour and product market reforms had improved Greece’s competitiveness over time. Rising goods and services exports had supported a recovery in economic growth and jobs in recent years. As a relatively small economy, Greece relies heavily on the external sector, with goods and services exports.
