GDP growth by 2.2%, and an acceleration of the growth rate to 3% for 2024, and 2.7% in 2025, the Bank of Greece predicts in the Monetary Policy Report submitted today Friday to the Parliament.

Inflation is forecast to ease to 4.3% this year from 9.3% last year, and will be 3.8% in 2024 and 2.3% in 2025, even though food, non-energy industrial goods and services are expected to contribute incrementally to its dynamics.

However, real convergence is one of the most important challenges facing the economy as the per capita income of the country corresponds to about 55% of the per capita GDP of the eurozone countries, compared to about 70% before the debt crisis. In order to cover the lost ground, it is required, according to the BoE, to maintain growth rates that far exceed the average rate of the eurozone. Otherwise, it may take more than fifteen years for the Greek economy to return to the level where it was in relation to the Eurozone before the debt crisis.

However, as mentioned in the Report, in the coming years the Greek economy is expected to continue to grow at rates higher than those of the potential product, the level of which has already been exceeded.

These performances can be achieved under the condition that in the external environment the geopolitical crisis will have de-escalated, energy prices will have decreased and the tightening of the monetary policy of the Eurosystem will have a limited negative impact on the eurozone economy. Additionally, the forecasts are based on the assumption that the Greek economy will continue to strengthen significantly from international tourism, the good course of implementation of investment plans and the development course of the eurozone, which is the country’s major trading partner.

TtE recognizes that there are risks for the prospects of the Greek economy due to the further deterioration of the external environment, higher and persistent inflation, the lower than expected rate of absorption of NextGenerationEU funds, and possible delays in the implementation of reforms, with negative effects on productivity and competitiveness, finally to further rising interest rates, which could slow growth and lead to a new generation of bad loans. Any more positive outcome is related to the faster de-escalation of inflation and the better than expected performance of tourism.

It is a major challenge for the Greek economy investment grade recovery and at a later stage its transcendence. And this is because this development will strengthen the resilience of the Greek economy to exogenous disturbances and episodes of volatility in the international markets, will limit the cost of raising capital for the public and private sectors and will facilitate the management of public debt, the realization of investments and the enhancing economic development.

Regarding Public Debt, it is reported that although it is, as a percentage of GDP, the second highest in the EU, the risks to the sustainability of public debt remain limited in the medium term, provided that the fiscal measures taken in the context of the pandemic and energy crisis are temporary in nature and that European resources are used effectively. However, in the longer term, increased uncertainty is estimated, as the gradual refinancing of the accumulated debt to the official sector on market terms will increase the exposure of the Greek State to interest rate risk and market risk, which eliminates the scope for relaxing the agreed fiscal targets.

For this reason, the Bank of Greece recommends a systematic return to primary, cyclically corrected, fiscal surpluses of the order of 2% of GDP. This is necessary in the medium term, as rising borrowing costs and falling growth and inflation rates limit the downward contribution of the implicit interest rate-nominal growth rate differential to debt dynamics

Finally, limiting the current account deficit is an important challenge, despite the fact that the high deficit recorded in 2022 (9.7% of GDP) is due to approximately 40% of increased fuel prices and is expected to decrease to 7% of GDP in 2023.

“In March and April 2023, two houses changed the outlook of the credit rating to positive from stable, which portends the upgrade to the investment category in a short period of time”, emphasizes Giannis Stournaras in the annual report of the Bank of Greece on the Greek economy.