The paradox in which Greece records positive performance in its economy at the level of the Eurozone, while at the same time the country is among the poorest, the Financial Times tries to explain.
As the newspaper reports, the rating agency S&P 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 our expectation that the tight fiscal regime will continue to drive down the public debt ratio, while growth will continue to outperform Greece’s eurozone peers.
Indeed, new data released by Eurostat on Monday showed Greece’s public debt-to-GDP ratio falling by 10.8 percentage points to 162 percent 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.
“Renewed political stability and strong fiscal consolidation make Greece a much more attractive country for investment than in the past”
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.”
The poorest residents in the eurozone
However, 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 EU’s poorest country,” writes the Financial Times report.
“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%.
Greece as… Depression of 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 have fallen steadily through 2022, the latest available in the OECD database, and are down 30 percent from 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.
In its latest country report, the IMF also cited climate change as a risk – with 90% of tourism infrastructure and 80% of industrial activity located in areas exposed to high climate risks – and the increasingly distressed demographics data.
Greece now has a less unbalanced model of economic growth — which is a positive — but the decline in construction activity has not yet been fully balanced by expansion into new sectors
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.
“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. .
Tags: Financial Times Greeces economic paradox Strong growth poorest
-
