By Chrysostomos Tsoufis

With a 2.5% growth rate estimated this year, the Parliamentary Budget Office is a bit more optimistic than the Ministry of Finance and the Bank of Greece about the country’s growth rate.

However, the path of 2 factors – the funds from the Recovery Fund and Durability and of inflation – according to the office’s scientists, they are the ones who will ultimately determine whether this 2.5% is really optimistic or not.

As far as community resources are concerned, according to the announcements of the Ministry of Finance, this year our country has received €3.6 billion, €1.7 billion in subsidies and €1.9 billion in loans.

The GDPB estimates that if the country manages to absorb 50% of this money, then the year can close with a growth rate of 2.7%.
Absorption of 75% would increase the growth rate to 2.9% while if every last cent reached the country then GDP would increase by 3.2% making the baseline estimate look very conservative.

The Bureau notes in its report that as money flowing into the real economy increases, public and private investment increases significantly. In the case of the absolute absorption of funds, public investments jump by 20.6% and private investments by almost 8%.

The factor of inflation on the other hand can make 2.5% seem overly optimistic.

In this scenario the Bureau assumes an increase in inflation of 1 point over its baseline estimate of 2.9% for this year. This increase can arise either because of a new exogenous inflationary shock or because endogenously the pressures to cover purchasing power lead to the increase of nominal wages above the sum of inflation and productivity growth.

In this scenario, 1 unit increase in inflation lands the growth rate at 2.1% for 2024 and cumulatively until 2026 “costs” about €2.4 billion or 1.2% of GDP.
And this is because with higher inflation compared to its main trading partners, the Greek economy:
It will lose in competitiveness
It will have a decrease in exports
It will have a reduction in real wages and private consumption
It will have a reduction in investment

Within this context, the Office recommends caution to the government, characterizing the recent increase in the minimum wage by 6.4% marginally within the endurance of the Greek economy, if not exceeding them. A strong growth rate in 2024 will ensure this, otherwise the scientific team warns there is a risk of hindering the de-escalation of inflation.