Greece records positive performance in its economy at the level of the Eurozone, at a time when the country is among the poorest, report the Financial Times.
As the newspaper reports, rating agency S&P was the latest to praise Greece, upgrading its outlook to “positive” and this is due to the fact that the Greek government is implementing “a program of far-reaching structural reforms to address long-standing pain points”, boosting its above-average growth Eurozone and resulting in a fall in the debt-to-GDP ratio.
The positive outlook reflects market expectations that the fiscal regime will continue to reduce public debt while growth will continue to outperform peers in the eurozone.
Indeed, new data published by Eurostat on Monday they showed that Greek public debt relative to GDP fell by 10.8 percentage points to 162% in 2023.
The Greek economy grew by 2% in 2023, the same one that saw a contraction of 0.3% in Germany. As of 2019, before the pandemic, the country had growth rates almost twice that of the eurozone.
Last week, the IMF said that the Greek economy will grow by 2% again this year and will continue to outpace the average growth rate of the Eurozone for the next two years.
The strong performance of tourism helps in this direction. The same applies to structural reforms aimed at removing obstacles to growth, such as increasing digital access to public services, speeding up judicial decisions and improving transparency and public finances.
As Guillaume Derrien, BNP Paribas economist at FTAV, told the Financial Times: “Renewed political stability and strong fiscal consolidation make Greece a much more attractive country for investment than in the past.”
But “Greece will soon be the poorest country in the EU”
As the columnist comments, the economic recovery in Greece slightly raised the standard of living in the country but not enough to remove the country from the last place, with the poorest residents in the eurozone.
As he mentions, this situation is not new for the Greeks who until 2009 had a GDP per capita close to the EU average.
Since then, 10 countries have seen their living standards rise above that of Greece, leaving it the second poorest in the EU after Bulgaria, and the poorest country in the eurozone, that is among the EU countries that have adopted the euro.
“As the gap with Bulgaria narrows sharply, it is not unreasonable to expect that Greece will soon become the poorest country in the EU“, writes the article of the Financial Times.
“How do these contrasting stories of strong recovery and poverty reconcile?” the article asks, explaining how the answer lies in the wake of the financial crisis and austerity that followed in 2010.
Spending was cut and taxes raised to secure a bailout from the IMF and the EU, squeezing businesses and households and wrecking the economy. The extent of the economic damage was unprecedented in peacetime.
The Greek economy shrank by almost 30% from the top to the middle classes. In 2016, consumer spending fell 24% from 2007, government spending fell 20%, and investment plummeted 65%.
Over the same period, manufacturing activity fell by almost half, retail trade and business activity shrank by almost a third. Unemployment soared to an all-time high of nearly 30%.
As a result, the Greek economy is now around 19% smaller than it was in 2007 – despite the country’s strong post-pandemic recovery – while the EU economy as a whole has grown by 17%.
It is only compared to the Depression in the USA in 1930
The financial hit is almost unprecedented in modern times, comparable only to the Great Depression in the US in the 1930s, notes Giorgos Lagarias, chief economist at Mazars Wealth Management.
Real wages fell steadily through 2022, the most recent year for which data is available in the OECD database, and are 30% below pre-crisis levels, leaving the country with one of the lowest average wages among developed economies.
The manufacturing sector — a major driver of growth before the crisis — has all but disappeared. Housing investment, which accounted for more than 10% of GDP at the height of the 2008 bubble, has since sunk to 2% of GDP, the lowest share among Eurozone countries.
As BNP’s Derrien says: “Greece now has a less unbalanced model of economic growth — which is positive — but the decline in construction activity has not yet been fully balanced by expansion into new sectors.”
There are also concerns about the country’s long-term economic prospects. Lagarias argues that growth with limited leverage (financial leverage) – as is the case in Greece – will remain sluggish and predicts that it will take many years of “persistent reforms” for Greece to return to where it was in 2007. Low investment and sluggish productivity also continue to limit Greece’s economic potential, according to Derrien.
In its latest country report, the IMF also cited climate change as a risk — as 90% of tourism infrastructure and 80% of industrial activity are located in areas exposed to high climate risks — and the increasingly dismal demographics data.
Births in Greece fell to a ninety-year low in 2022, exacerbating an aging and shrinking population as many young people leave the country each year.
Overall, concludes the Financial Times article, “Greece’s economic recovery should be celebrated, but it must be seen in the context of the significant economic crisis that has left the country in a hole, to climb out of. it may take a whole generation».
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