Fitch Solutions is upgrading its forecasts for the Greek economy, after the GDP performance in 2022 positively surprised it.

The house now expects growth rates of 0.9% in 2023 (up from 0.6% previously) and 1.9% in 2024, predicting that private consumption and investment will support the economy.

In particular, Fitch Solutions estimates that private consumption will grow in 2023 by 2.6% (versus 7.8% in 2022), boosted by pre-election fiscal measures and growth.

Although high inflation weighed on retail sales in the fourth quarter of 2022, analysts expect this trend to begin to reverse somewhat in 2023 as inflation slows to an average of 4.7% this year. Of course, remaining much higher than the average of 0.4% in the period 2011-2019, it weighs on real incomes.

At the same time, consumers are expected to be pressured by the government’s withdrawal of significant energy subsidies. But Fitch Solutions points out that the Markey Pass will offset some of the increased food costs.

Another “burden” for consumption will be the increase in interest rates, with the house noting, however, that due to the low credit expansion of previous years, Greek households will suffer a smaller shock to their finances compared to those of the rest countries of the Eurozone.

The investments

Fitch estimates investment will slow from 11.7% in 2022 to 9.7% in 2023. The outbreak of war in Ukraine has pumped capital into Greece’s energy transition, while Athens is making strong progress in achieving its reforms Recovery and Resilience Program, analysts point out.

The house notes that public sector investment growth will be supported by continued Recovery Fund disbursements in 2023, while private investment is expected to be subdued due to higher borrowing costs for businesses due to the ECB’s interest rate hike.

On the tourism front, the house points out that the less negative outlook for Europe will support related activity more than expected.

The elections

On the risks to the Greek economy, Fitch Solutions highlights that political uncertainty related to the elections could stand in the way of absorbing the Recovery Fund funds in 2023. A fragmented Parliament could stand in the way of achieving the reforms needed and lead to a delay in disbursements and therefore negatively affect investments, it is emphasized.