The Greek economy is indeed achieving positive performance among the best in the EU, write the Financial Times but presenting the following paradox: While Greece actually records better performances among the best EU countries. at the same time it has become the poorest among them.
Last week, the S&P rating agency he was the last to praise Greece, upgrading its outlook to “positive”. This is because the Greek government is implementing “a far-reaching structural reform program to address long-standing problem areas”, boosting growth above the Eurozone average and resulting in a fall in the debt-to-GDP ratio.
The positive outlook reflects the markets’ expectation that the tight fiscal regime will continue to drive down public debt, while growth will continue to outperform Greece’s Eurozone peers. Indeed, new data published by Eurostat on Monday showed that Greece’s public debt-to-GDP ratio 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 — in line with an improving labor market and recovery in consumption — is helping 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. Speaking to the Financial Times, Guillaume Derrien, BNP Paribas economist at FTAV: “Renewed political stability and strong fiscal consolidation make Greece a much more attractive country for investment than in the past.”
The recent recovery in Greece, however, has only slightly raised living standards in the country relative to the EU average over the past two years – and not enough to move the country out of last place, with the poorest residents in the Eurozone. argue the Financial Times in their report.
They also add that the situation is new for Greeks, who until 2009 had 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, i.e. 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 EU’s poorest country,” the paper writes. “How do these contrasting stories of strong recovery and poverty reconcile?” asks the article on to then explain that 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%. The economic hit is almost unprecedented in modern times, comparable only to the Great Depression of the USA in the 1930s, underlines Giorgos Lagarias, chief economist at Mazars Wealth Management. Real wages fell steadily through 2022, the most recent year for which data is available in its database OECDand 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 report on Greece, 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 dire demographics data.
At the same time there is a decline in births in Greece falling to a ninety-year low in 2022, exacerbating the aging and shrinking population as many young people leave the country each year. “Greece’s economic recovery should be celebrated, but it must be viewed in the context of a major economic crisis that has left the country in a hole that may take a generation to climb out of,” the Financial Times article concludes. .
