IOBE: Greater growth in 2022 and 1.6% in 2023 – Inflation at 9.7% this year

Growth rates 6% this year, and 1.6% in 2023 predicts for the Greek economy in its basic scenario the IOBE, revising its forecasts for the better. For inflation, respectively, the average index is estimated at 9.7% this year and 4.2% in 2023, while the IOBE notes fatigue in the rate of unemployment reduction, which is, however, predicted to fall to 11.5% next year from 12.3 % this year.

Budget execution is moving better than initial targets for this year, but the outlook for 2023 is emerging as negative. Budget cash targets were exceeded in the first eight months of 2022, mainly from higher revenues of the State Budget (+€5.7 billion against the target). There was an increase in most revenue categories compared to last year, mainly due to increased economic activity and a better-than-expected performance of the economy. Exceeding the target also on the expenditure side (-€192 million), mainly due to the deferral of the payments of the equipment programs by €803 million.

Continuous reduction of the unemployment rate in the second quarter. of 2022 to 12.4% from 15.8% in the second quarter. of 2021, however with early signs of fatigue in the third quarter. The sectors with the largest increase in employment were Tourism (+84.4 thousand people), Education (+30.4 thousand employed) and Manufacturing (+27.9 thousand employed), while the sector with the strongest decrease was the Public Administration (-20.9 thousand people). Employment is expected to be mildly positively affected by the strengthening of investments, the maturation of major infrastructure projects, the utilization of the Recovery Fund resources, the smaller rise in consumption and exports, as well as the public sector hiring plan. These factors are expected to partially offset the negative impact of tight monetary policy and persistently high energy costs on business labor demand. A further downward trend in unemployment is expected in the coming quarters, but with a clear tendency to slow down. Taking into account the above effects, the unemployment rate in 2022 is expected to fluctuate in the region of 12.3%, while in 2023 in the region of 11.5%.

The rate of change in the CPI in the first nine months of 2022 was particularly high at 10.1%, compared to marginal inflation of 0.2% a year ago. The strong rise is mainly due to the increasing direct effect of energy goods, and the stimulation of domestic demand. IOBE estimates that prices will remain on an upward trajectory this year, in the region of 9.7%, mainly due to the strong rise in energy product prices, but also consumer demand. For 2023, and taking into account the assumptions and trends shaping the prices, it is predicted that the General Consumer Price Index will strengthen in the region of 4.2%.

The banks

Its fundamentals banking system are improving, however banks will face increasing challenges in the medium term. In positive developments, Non-Performing Loans on banks’ balance sheets fell in the second quarter to the lowest level since December 2009, private deposits and credit expansion to businesses strengthened towards the middle of the year.

On the challenge side, the rise in the cost of money has accelerated, while funding conditions from the capital markets have worsened. The cost of new borrowing for the Greek government rose in the third quarter of 2022, while at the same time the spread with the “core” of the Eurozone widened. The cost of new bank lending to the private sector remained low, although there was an increase in housing credit. The risk of a new round of overdue debts due to the consequences of the energy crisis on the ability to repay households and businesses is also not negligible.

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