IOBE is in the process of changing its forecasts for the course of the Greek economy in 2024. According to what its head Nikos Vettas said today, he is “lowering” the growth bar to 2.1% and “raising” inflation to 3%.
The big bet for the Greek economy remains the increase in investments, with the IOBE estimating that they will increase this year by 7.8% (from 10.8% before), while the increase in Greek GDP…drops to 2.1%, from 2.4% which is the previous forecast.
Inflation is decelerating to 3% this year, while the immediate previous forecast set the bar at 2.8%, with unemployment continuing to decline but at a slower pace with a tendency to stabilize near 10%. IOBE estimates that this year it will decline to 10.3%. Regarding inflation, Mr. Vettas also referred to the domestic issues that exist, in addition to the international situation.
Difficult consumer outlook for 2024 – Expectations for 2025
The challenges
Regarding the challenges for Greece, Mr. Vettas noted that there was a negative surprise from the path of investments in 2023, their increase was much lower than the forecasts which affected the growth. Labor market fatigue is evident with the rate of unemployment falling. If the unemployment rate stabilizes at 10% this will coexist with many businesses and industries saying they cannot find workers. There is also a fatigue in the economic climate, according to IOBE.
Fiscal policy challenges remain, despite positive developments. In recent years, the interventionist policy of the state had intensified in all markets, from subsidies such as during the pandemic and interventions in the market due to accuracy.
Positive image
Among the positives of our country, according to Mr. Vetta, is the significant reduction in the country’s lending spread as a result of obtaining the investment grade, but also its better course in relation to the Eurozone, the increase in tourism that allows balancing the balance current account, the good business climate, and the good course of the fiscal, as was seen with the deficit.
Referring to inflation at the eurozone level, the head of the IOBE said that the monetary work done had an effect, but it will continue to remain at the level of 2% for some time.
Beyond that, Mr. Vettas that there is a reduction in the dynamics of the Greek economy, the rate of which however remains higher than the average of the Eurozone, where it is expected to grow by just 0.6% from 0.5% last year. According to Mr. Vetta, this slowdown of the Greek Economy began in the second half of 2023.
As IOBE points out, the slowdown of the Eurozone economy, the gradual de-escalation of inflation and interest rates, geopolitical instability, fiscal figures and the execution of the revised Recovery and Resilience Plan, are now determining factors of the evolution of GDP in 2024.
The dangers
• Further geopolitical instability and economic uncertainty at regional and international level (war in Ukraine, Middle East, US elections, European Parliament).
• Slower reduction of interest rates in Europe in 2024, especially in an alternative scenario of a large increase in international energy prices.
• High deficit in the external balance, with structural characteristics.
• Labor market: Slower de-escalation of the unemployment rate, partly due to high structural unemployment.
• Progressively tighter fiscal targets. The tax base in Greece remains narrow.
• Loss of competitiveness due to higher m.o. of Eurozone inflation after mid-2023. Persistent inflation in essential goods such as food, higher than a.d. of EZ in 2024.
• High loan-deposit interest rate spread and systematically negative household savings rate.
• Risk of a new flare-up of overdue debts and NPLs, due to rising interest rates and cost of living. An obstacle to the redistribution of resources are bad loans on and off bank balance sheets.
• Investment mix: Investments in Housing/Construction and transport equipment, decrease in other sectors.
Positive prospects
• The acceleration in the implementation of the revised Recovery and Resilience Plan combined with the expansion of its loan arm and REPowerEU, can “unlock” international funds for productive and more long-term investments.
• The reduction of interest rates, if it starts earlier in the middle of the year, will be an opportunity to accelerate investments.
• Bet on the strengthened extroversion of the economy, with a gradual improvement of the external balance.
• Reforms with a medium-term horizon of 2024-2027 may increase productivity which deviates from the average in Europe.
• The reduction of NPLs at the level of the entire economy will free up productive resources for more efficient distribution.
• Significant backlog of construction projects.
: Growth at 2.1% this year – Inflation at 3% – Economic Postman){kind=link}