Perspectives

A slower recovery than other countries in 2021?

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Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
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GREECE  
A SLOWER RECOVERY THAN OTHER COUNTRIES IN 2021?  
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  
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020 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.  
With GDP only recovering by 2.3% in Q3, Greece posted Europe’s  
weakest rebound in output during the summer. Going into Q4, Greece’s  
GROWTH AND INFLATION (%)  
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real GDP was still 12.1% below its level at the end of 2019 . The slump  
in service exports – related to the fall in tourism activity – continued in  
Q3, causing net exports to be a major drag on GDP. Imports rebounded  
GDP Growth  
Inflation  
Forecast  
5.0  
Forecast  
2
more significantly in line with stronger consumer spending . The  
5
3
.0  
.0  
3.5  
European Commission now forecasts Greek GDP to contract by 9.0%  
in 2020, almost twice the decline initially anticipated in the stability  
programme. Output should then pick up by 5.0% in 2021.  
1.6  
1.3  
0
.9  
0
.5  
1.0  
1.0  
3.0  
5.0  
-
-
-
Since Greece’s economy is heavily dependent on tourism, its recovery  
could be weaker than those in other European countries in 2021. The  
Covid-19 crisis could cause a more long-term hit to the tourism sector,  
even if the pandemic fades gradually as one or more vaccines are  
rolled out in the near future. This will have evident ramifications for  
the labour market. In November, household expectations about future  
-
1.3  
-7.0  
-9.0  
-
9.0  
-11.0  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
trend in unemployment has reached its lowest level since August  
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013 , a period when tensions regarding Greek sovereign debt were  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
still intense. That said, government projections show a “contained” rise  
in unemployment in 2020, with the jobless rate climbing by 1.6 points  
to 18.9% before falling back to 17.9% in 2021. These forecasts are fairly  
close to the European Commission’s estimates.  
Nevertheless, Greek bond yields – which have continued to fall over  
the autumn – should remain low in 2021 thanks to the support from  
Against the backdrop of this fragile recovery, fiscal policy will play a  
crucial role in supporting activity again in 2021. The 2021 budget –  
which was still being discussed in parliament at the time of writing  
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the European Central Bank, the European Recovery Fund and the  
low trend in inflation. This will reduce debt servicing costs further.  
According to the OECD, net interest payments on General Government  
Debt will continue to fall in 2020 (2.51% of GDP) and 2021 (2.43%). For  
the sake of comparison, net interest payments peaked at 7.2% of GDP  
at the height of the European crisis in 2011.  
includes a reduction in employee social-security contributions and  
new subsidies for companies hiring the long-term unemployed. At the  
same time, the National Recovery Plan, which will be finalised in the  
first quarter of 2021, will mainly be funded by the grants received  
from the European Recovery Fund. As a share of GDP, Greece will be  
the third-largest recipient of direct subsidies (10.0%), behind Croatia  
Completed on 7 December 2020  
(
12.1%) and Bulgaria (11.5%). If we incorporate loans, Greece could re-  
ceive EUR 32 billion from the European Recovery Fund between 2021  
and 2026, which is equal to 17% of its 2019 GDP.  
Despite this support from the EU, Greece’s public finances remain a  
concern in the long run. The European Commission has revised upward  
its forecasts regarding Greece’s deficits for 2020 (6.9% of GDP) and  
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021 (6.3%). As a result, public-sector debt is expected to hit 207.1% of  
GDP in 2020 before falling to 200.7% in 2021 thanks to the upturn in  
economic growth.  
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As opposed to a European average of 4.4% (Eurostat).  
After adjusting for seasonal variations.  
European Commission data.  
4 On 18 November, the yield spread to German Bunds fell below 1.6 percentage points for  
the first time in over ten years.  
The bank  
for a changing  
world  
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