The Bank of Greece predicts a slight acceleration of growth for 2024-2025.

In the financial bulletin issued today by the Central Bank, it predicts that in 2024 the country’s GDP will increase by 2.2% from 2% in 2023, while for 2024 the growth rate will be 2.5% and 2.3% in 2026.

According to BoE estimates, the full implementation of the EU recovery plan will contribute to a significant increase in real GDP by 7% by 2026, mainly due to the increase in total investment and total factor productivity. At the same time, it will contribute to increasing employment, private investment, exports and tax revenues.

The implementation of the reforms linked to the Recovery Fund is expected to bring about a permanent increase in real GDP and total factor productivity (over a decade)

For 2024, it is estimated that growth will be based mainly on investments, which are supported by available European resources, and private consumption. Inflation is expected to slow further to 3.0% in 2024, due to further decline in food, non-energy industrial goods and services inflation rates.

Fiscal policy in 2024 is expected to be slightly expansionary, due to increased investment spending financed by the Recovery Fund. The Bank sees risks in this course which may come from a worsening of the geopolitical crisis in Ukraine and the Middle East, developments which, to the extent that they eventually occur, will significantly affect growth rates downwards as they increase uncertainty and exert upward pressure in energy prices.

Regarding the sustainability of the Public Debtthe BoE predicts that due to the increased costs incurred during the pandemic, the energy crisis and the related fiscal expansion, in the medium term the Public Debt to GDP ratio will have a increasing trendas well as to a lesser extent, the country’s gross financial needs as a percentage of GDP.

Based on the basic assumptions for the timely withdrawal of the expansionary fiscal measures taken in the context of the pandemic and the energy crisis, and assuming the effective use of the Recovery Fund funds, the course of both Public Debt and gross financing needs is expected return to a downward trajectory, broadly in line with pre-pandemic prospects over the longer term. Despite higher interest rates, risks to debt sustainability remain limited in the medium term. This mainly reflects: (i) the highly favorable terms of official sector loans (including grace periods, long maturities and interest deferrals) which make up the bulk of the accumulated debt stock, (ii) 100% of the central bank’s fixed rate debt government (end-June 2024) and (iii) a very substantial cash reserve exceeding 15% of GDP (end-June 2024). In the long term, however, sustainability risks remain elevated. As loans with favorable terms will be gradually refinanced on market terms, with the result that the country’s exposure to adverse shocks will increase, which requires its commitment to fiscal vigilance.