Bank of Greece: Acceleration of the country’s growth in 2024 – 2025

The country will increase by 2.2% in 2024, from 2% last year, according to the financial bulletin published today (23.9.2024) by the TTE, while in 2024 it is expected to be set at 2.5% and 2026 at 2.3%. As the TTE estimates show, 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 overall productivity of inputs. At the same time, it will help increase employment, private investment, exports and tax revenue. Implementation of reforms linked to the Recovery Fund is expected to bring about a permanent increase in real GDP and total productivity of inputs (due to decade) For 2024 it is estimated that growth will be based mainly on investments supported by available European resources and private consumption. Inflation is expected to slow further to 3.0% in 2024, due to a further reduction in inflation rates of food, non-energy industrial goods and services. The fiscal policy in 2024 is expected to be slightly expansive , due to increased investment expenditure financed by the Recovery Fund. The TTE sees risks in this course that may result from a deterioration in the geopolitical crisis in Ukraine and the Middle East , developments which, to the extent that they eventually occur, will have a significant impact on growth rates as they increase uncertainty and exert upward pressure on energy prices. Regarding the sustainability of the Public Debt , the TTE provides that , due to the increased costs incurred during the period of the pandemic , the energy crisis and the related fiscal expansion , in the medium term , the ratio of the Public Debt to GDP will have an increasing trend, as will also to a lesser extent, the country’s gross financial needs as a percentage of GDP. On the basis of the basic assumptions for the early withdrawal of the expansionary budgetary measures taken in the context of the pandemic and the energy crisis, and by admitting the effective use of the funds of the Recovery Fund, the progress of both the Public Debt and gross financial needs is expected to return to a declining path, in general in line with the prospects that existed before the pandemic occurred in the long term. Despite higher interest rates , risks to debt sustainability remain limited over the medium term . This reflects mainly: (i) the particularly favourable conditions of the loans in the official sector (including grace periods, long term maturity and interest deferrals) which constitute most of the accumulated debt stock, (ii) 100% of the central government’s fixed rate debt (at the end of June 2024) and (iii) a very significant cash reserve exceeding 15% of GDP (at the end of June 2024). In the long term, however, sustainability risks remain increased. As favourable loans will be gradually refinanced on market terms, thus increasing the country’s exposure to adverse disturbances , which presupposes its commitment to fiscal vigilance. Source: RES – ICM