The recovery of the Greek economy should be welcomed, but it should be seen in the context of the great crisis that has passed, says a publication of Financial Times, noting that the crisis left a hole, from which it may take a generation to get out.
Greece is indeed among the best performing countries in the Eurozone, but she is now also the poorest, she notes.
Its economy grown by 2% in 2023 against a 0.3% contraction in the German economy. Since 2019, it has been growing at almost twice the rate of the Eurozone, while the IMF predicts in its latest report that it will grow 2% this year as well and its GDP will continue to grow more than the Eurozone over the next two years.
At the same time, its public debt decreased last yearas announced by Eurostat, by 10.8 percentage points to 162% of GDP and S&P on Friday upgraded its debt outlook to positive.
However, the latest recovery has raised Greeks’ living standards only slightly above the EU average over the past two years, and not enough to stop them being the poorest in the Eurozone.
The poorest country in the Eurozone
This fact was something new for Greece as its GDP per capita was close to the EU average until 2009 when the crisis broke out. Since, the standard of living in 10 EU countries exceeded that of Greece, which became the second poorest country in the EU after Bulgaria.
“With the gap with Bulgaria rapidly closing, it is not unreasonable to expect that Greece will soon become the poorest in the EU,” the report said.
Greek economy shrank by almost 30% since the beginning of the crisis. In 2016, consumer spending was down 24% compared to 2007, government spending down 20% and investment down 65%.
The Greek economy is currently 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%.
The economic blow is almost unprecedented in modern times, comparable only to the Great Depression of the US in the 1930s, notes Giorgos Lagarias chief economist at Mazars Wealth Management.
30% reduction in real wages
Real wages were falling steadily until 2022, according to the OECD database and were 30% lower than pre-financial crisis levelsa, leaving the country with one of the lowest average wages among developed economies.
The construction sector – an important driver of growth before the crisis – had almost disappeared. Investments in housing, which accounted for more than 10% of GDP at the height of the 2008 bubble, have since fallen to 2% of GDP, the lowest among eurozone countries.
There are also concerns about the country’s long-term economic prospects. Mr Lagarias argues that under-leveraged growth – which is Greece’s case – will remain sluggish and predicts that it will take several years of “persistent reforms” to get Greece back to where it was in 2007.
In its latest country report, the IMF also cites climate change as a risk – as 90% of the country’s tourism infrastructure and 80% of industrial activity are located in areas exposed to high climate risks – as well as the increasingly negative demographics.
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