The Greek economy, after the negative disruption of the pandemic, which in national accounts terms was mainly reflected in the 2020 data (real GDP fell by 9.3% annually), is in an expansion phase, according to Eurobank's 7 Days Economy. The decompression of pent-up demand at home and abroad, fiscal and monetary support measures, and the creation of the Recovery and Resilience Fund have been catalysts in this development.
GROWTH RATE
According to the latest data from the Hellenic Statistical Authority (ELSTAT), the Greek economy, despite the adverse international environment, maintained its momentum in the first half of 2024, recording a real growth rate of 2.2% on an annual basis. Greece's real Gross Domestic Product (GDP) in Q2 2024 exceeded pre-pandemic levels (Q2 2019) by 8.4% but remained 21.5% lower than the peak in Q2 2007. The aforementioned divergence is much smaller in nominal GDP terms (4.8%) due to the strong inflation of recent years, 9.3% and 4.2% in 2022 and 2023, respectively. However, the social welfare of citizens is mainly linked to the path of real GDP, i.e., the value at constant prices of the final goods and services produced by an economy over a period, and to a lesser extent to the trajectory of nominal GDP.1 Households derive utility not from the quantity of monetary units they have at their disposal but from the quantity of goods and services they can buy with those monetary units (purchasing power).
According to the latest note of the Bank of Greece (Note on the Greek Economy, 20/9/24), the real growth rate in Greece for the years 2024, 2025, and 2026 is estimated at 2.2%, 2.5%, and 2.3% (average 2.3%), respectively. Current market forecasts (Focus Economics magazine) place growth for 2024, 2025, and 2026 slightly lower at 2.1%, 2.1%, and 2.2% (average 2.1%), respectively. International developments obstruct the path of the Greek economy despite the expected boost to the economy that the investments and reforms linked to the Recovery and Resilience Fund will provide. One important factor is the weak growth performance of the euro area, a performance that may negatively affect Greek exports of goods and services in a direct and indirect way.
In detail, from Q2 2022, i.e., shortly after the outbreak of the war in Ukraine, until Q2 2024, the average quarterly growth rate in the Eurozone was 0.1% and in Germany -0.1%. This performance resulted in real GDP in the Eurozone in Q2 2024 deviating from its pre-pandemic trend by -4.2% and in Germany by -7.6%. Germany, the largest economy in the Eurozone, is facing serious challenges linked to its industry, which is suffering from the energy crisis and competition from China (e.g., electric cars). Take note that in 2023, the Eurozone consumed 42.0% of Greek exports and Germany consumed 6.7%. In addition, in the same year, the Eurozone contributed 45.9% of travel receipts—excluding cruise revenues—and Germany 18.1%. Therefore, due to the aforementioned strong trade links, a prolonged weak growth in the Eurozone may negatively affect Greek exports of goods and services.
ABOUT DRAGHI REPORT
The recent report by the former head of the European Central Bank (ECB) and former Prime Minister of Italy, Mario Draghi, highlights the structural problems and competitiveness deficit—vis-à-vis the US and China—of the European Union as a whole. At Eurozone level, the figures were revealing even before the energy crisis and the pandemic. Since the global financial crisis, the Eurozone has been on a markedly lower growth path than the one it followed until 2008. One possible explanatory factor is the slowdown in productivity. Euro area real GDP in Q2 2024 was 22.3% lower than the level it would have been if it had returned to the growth path it followed before the global financial crisis (-21.4% in France and -22.2% in Italy). It turns out that the economies of France, Italy, and Spain made the largest contribution to the initial stage of the euro area GDP divergence from its pre-GFC trend. In the last 2 years, the baton has been passed to Germany.
Alongside growth, risks for Greece also lurk for inflation. Since Jun-24, a new increase has been recorded, with the latest observation, that of Aug-24, coming in at 3.2% (core at 3.7%), compared to 2.2% in the euro area (core at 2.8%). Nevertheless, compared to a year ago, inflation in Greece in August was 0.3 percentage points lower.
It is widely accepted that from 2020 onwards the global economy is dominated by mainly negative supply shocks. Pandemics, energy crises, wars, geopolitical tensions in major shipping lanes, and natural disasters due to the climate crisis negatively affect growth, increase production costs, and consequently inflation. On the contrary, the ongoing 4th industrial revolution, through the innovative new technologies it offers, is a positive disruption to the supply side. However, the beneficial effects of new technologies require time to diffuse through the economy.
"Despite the adverse international environment, over the past 2.5 years the Greek economy has shown resilience and has been growing at a satisfactory pace. However, the challenge of changing its production pattern still persists (the current account deficit is expected to remain above 6 percent of GDP in 2024). In this environment, supply-side policies (increasing competition, adopting new technologies, improving the quality of institutions) can cushion the impact on the economy of possible future resurgences of these negative shocks. In addition, the redesign of international trade routes can also create opportunities for domestic production," Eurobank concludes.
