Acceleration of the growth rate of the Greek economy for 2024 and 2025, and then a slight decline in 2026, the Bank of Greece predicts.

In the “Note on the Greek economy” report that Parasekii released today, the growth rate of the Greek economy in 2023 is expected to be 2.4%, accelerating marginally to 2.5% in 2024 and 2025. and to decrease to 2.3% in 2026.

Inflation is forecast to fall from 4.1% this year to 3% and 2.4% in 2025. Unemployment from 11.1% in 2023 will fall to 10.2% this year and to 9.1% in 2025 and 8.2% in 2026.

However, it is estimated that there are risks of a further slowdown of these rates mainly due to a worsening of the geopolitical crisis in Ukraine and the Middle East and the negative consequences they will bring to the international economic environment. A lower-than-expected pace also carries risks absorption of RRF (Development Fund) fundsas well as a delay in the implementation of the reforms.

The main driving forces for the growth of economic activity according to the Bank of Greece in the coming years will continue to be investment and private consumptionwhile the contribution of the external sector will be marginally negative.

Monetary policy will remain accommodative for some timewhile public investment will contribute positively to growth thanks to funds from the fund (RRF).

– Specifically, private consumption will increase by 2.0% on average during these years. It will be supported by strong real household disposable income as employment continues to recover and inflation eases. Public consumption will have a marginally negative effect.

– Investments will continue to grow at a high rate throughout the projection period, supported by available European funds. These resources, combined with high liquidity in the banking sector, will attract private capital. The high investment growth rates reflect the improvement in the economic climate, especially after the economy was upgraded to investment grade, and after the significant disinvestment during the last decade.

Exports will continue to grow significantly in the coming years, but at a softer pace compared to 2022, due to the expected weakening of economic activity in the euro area and the related losses. The contribution of the trade sector to real GDP will be marginally positive in 2023, while in the following years it will be slightly negative.

This is largely due to strong investment activity, which will strongly increase imports.

– The unemployment rate is expected to rise to 11.1% in 2023 (annual average), with a gradual decline to 8.2% in 2026. This trend reflects the continued recovery in economic activity.

Inflation averaged 4.2% in 2023, up from 9.3% in 2022, mainly reflecting the large drop in energy prices (-13.5%). For 2024, inflation is expected to slow further to 3.0% and 2.9%, respectively. This development is expected due to the further reduction in the annual rates of change of the components of food, non-energy industrial goods and services, while energy prices are expected to remain unchanged. Inflation is projected to gradually slow further in 2025 and 2026.

Financial Developments

Regarding developments in the financial sector, the BoE points out that from the fourth quarter of 2021, the increase in deposits of the private sector has slowed.

Businesses have used their cash reserves in the face of higher interest rates. Household deposits have been adversely affected by increased consumer spending, high inflation and, more recently, higher yields offered by alternative investments.

Business loan growth has slowed since the last quarter of 2022 amid higher interest rates and weakening economic growth. Bank loans to households continue to decline due to mortgage deleveraging.

Bank lending rates have seen significant increases, especially for business loans, following the tightening of the single monetary policy.