With GDP growing this year by 6.9% and 4.5% next year, 2022 is expected to be a year of recovery of the Greek economy in normal conditions. This refers to the budget submitted to the Parliament and it is pointed out, at the same time, that in the fourth quarter of the year the total annual GDP losses of 2020 are expected to be recovered, with the level of real GDP at the end of 2022 exceeding the corresponding level of 2019 by 1.7%.
According to the text of the budget, the basic figures of the economy are as follows:
– GDP will increase by 6.9% this year and by 4.5% in 2022, from a decline of 9% in 2020.
-This growth is mainly based on consumption, private investment and exports. In particular, private consumption will increase by 3.3% this year and by 3% in 2022, from a decrease of 7.9% in 2020. Private investment will move up 11.7% this year and 21.9% in 2022 ( due to the funds from the Recovery Fund), from a drop of 0.3% last year. Exports will increase by 14.1% this year and 11.1% next year, from a fall of 21.5% in 2020. Imports will also increase, but at a slower pace compared to exports (+ 6.6% in 2021 and + 8.9% in 2022, from -7.6% in 2020). Meanwhile, public consumption will increase this year by 4.1% from an increase of 2.6% last year, to decrease by 2.8% in 2022 due to the gradual withdrawal of support measures for the pandemic.
Unemployment is projected to escalate further to 14.2% in 2022 from 15.9% this year and 16.3% last year.
– Harmonized inflation is projected to increase by 0.8% in 2022 from an increase of 0.6% this year and a decrease of 1.3% in 2020.
Analytically, as mentioned in the text, the primary factor for the stimulation of economic activity in 2022 is the Greek plan of recovery and resilience, with the expenses incurred from the budget of the Recovery and Resilience Fund. As a result, within 2022 the implementation of the plan is expected to give the Greek economy an additional 2.9 percentage points of GDP, excluding leverage, helping to reduce the long-term investment gap and laying the foundations for high growth in the medium term. through the contribution of the reform arm.
Another important factor for accelerating growth compared to 2021 is the gradual return to normal health conditions on the basis of the implemented vaccination program, which in turn will allow the full normalization of market operation, deriving additional benefits from the ” profits “of the pandemic period in terms of digitization and extroversion of the economy. The return to normalcy is expected to facilitate the further recovery of the tourism sector, with receipts from abroad increasing by 60% compared to 2021, while supporting the smoothing of fiscal figures.
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Following the formation of the general government deficit in 2021 close to the level of 2020, due to the still implemented expansionary fiscal policy, the return to growth conditions in 2022 is expected to significantly reduce the deficit by 5.6 percentage points of GDP by ESA, returning to primary surpluses from 2023. A similar improvement is estimated for the current account deficit, by 1.5 percentage points of GDP, approaching its pre-crisis level.
Still, a favorable factor for the formation of a high growth rate in 2022 is the beginning of the implementation of certain development measures in the logic of improving the investment environment and the income support of households, as planned before the pandemic. These measures include the reduction of the corporate income tax rate from 24% to 22%, the provision of incentives for mergers and collaborations of medium, small and very small enterprises, the introduction of tax incentives for the use of electronic transactions, the abolition of the tax parental benefits and donations for benefits and donations up to 800,000 euros and the increase of the minimum wage.
In addition to the above measures, in September this year another package of measures was integrated into the political planning, in order to address the effects of the transient inflationary pressures recorded in the current period, to eliminate the risk of labor market delays in the post-pandemic transition period and to avoid inequalities in access to the digital transition. These include the increased discount on green economy / energy / digitization costs, the National Youth Action Plan, incentives for young people to enter the labor market (first stamp), the reduction of mobile subscriber fees abolition for young people up to 29 years of age and the establishment of the Energy Transition Fund.
The increase in real private consumption in 2022 is expected to be based, in addition to the use of accumulated savings, on the increase in employment by 2.6% (with 83.3% of new jobs related to paid employment) but also on the increase of the nominal average salary by 1.1%. These estimates show that wage earnings will rise by 4.1% above the level of 2021. Inflation is expected to be moderately positive throughout 2022 (0.8%), as inflation trends in 2021 are expected to begin to decline. during the second quarter of 2022, allowing a benefit in terms of real average salary by 0.2% compared to 2021 in the whole year.
The acceleration of the growth rate of real investments in 2022 is based on the implementation of the projects of the Recovery and Resilience Fund, with more than 88% of the total distribution of grants and loans for the year to be directed to investments, of which 41.6% to public investments with a high multiplier effect. On the other hand, the volume of public consumption is expected to adjust closer to pre-pandemic levels in 2022, decreasing by 2.8% on an annual basis, while the trade deficit in terms of volume is expected to worsen by 1.8 percentage points of GDP , amid the increase in equipment imports under “Greece 2.0”.
Uncertainties
However, as the text points out, the prospects of the Greek economy today are surrounded by increased external risks, given the uncertainties associated, firstly with the evolution of the pandemic (occurrence of mutations and conditions of higher transmission of the virus, maintenance of vaccination coverage of the population), secondly with the most permanent nature of the current inflationary pressures internationally and thirdly with the geopolitical tensions and migration flows in the wider region of the eastern Mediterranean.
Additional exogenous risks to the Greek recovery are potentially shaped by the climatic factor. The increasing frequency of natural disasters has a negative impact on the Greek economy both in the short term (such as the economic and budgetary cost of the fires of August 2021) and in the long term in terms of sustainability of high growth rates and growth potential of the tourism product. In this context, in September this year, an autonomous Ministry of Climate Crisis and Civil Protection was established, with the mission of managing natural disasters and crises and tackling climate change. From 2022 to 2025, the relevant policy planning is oriented towards the formation of a network of prevention and immediate response to natural disasters, covering part of the funding from the Recovery and Resilience Fund and the NSRF.
On the other hand, endogenous risks to the success of the financial outlook for 2022 are any obstacles to the timely implementation of the recovery and resilience plan, as well as the possibility of delays or “permanent scars” from the pandemic on the productive fabric of the economy and the market. after the end of government financial support measures.
All of the above (mainly exogenous) risks create an environment of strong uncertainties for macroeconomic and budgetary forecasts, as any change in these external affairs has a significant impact on the outcome of the forecasting process.
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