Parliament Budget Office: 2.2% Growth Forecast for 2025 Amid War and Tariff Risks

Despite the slowdown in the global economy and rising geopolitical uncertainty due to tensions in the Middle East, the Parliament Budget Office has only marginally downgraded its growth forecast for this year in its quarterly report. Specifically, the Office predicts that 2025 will close with a GDP increase of 2.2% (down from 2.3% in the previous forecast), with growth mainly driven by private consumption and exports. However, the report emphasizes that maintaining this growth trajectory depends on three key conditions: external stability, smooth implementation of Recovery Fund investments, and accelerated domestic reforms. In terms of public finances, the picture is more stable. Maintaining primary surpluses and reducing debt are seen as foundations for boosting investor confidence and attracting capital. The report links continued positive ratings from credit agencies with the need for fiscal policy consistency. External risks, however, remain significant. The new US tariff policy, characterized by unilateral protectionism, is expected to impact economic activity in the EU and Greece, particularly through reduced exports. Additionally, renewed tensions in the Middle East create conditions for new inflationary pressures and market volatility. In response, the report highlights the need for targeted interventions in vulnerable export sectors, supporting businesses expanding into new markets, and activating tools like Export Credit Greece to enhance Greece’s outward-oriented economy. GDP grew by 2.2% in Q1 2025 compared to the same period in 2024, surpassing the Eurozone average of 1.5%. This growth was driven by private (+1.9%) and public consumption (+0.7%), along with goods and services exports (+2.2%). Conversely, fixed investment fell by 3.2%, while imports rose by 2.4%, affecting the trade balance. The annual GDP growth forecast for 2025 has been slightly revised downward to 2.2% from 2.3% in March’s report. Inflation remains persistent at 3.3% in May, up from 2.4% last year and 2.6% in April, primarily driven by services and food prices. Fiscal management shows positive results, with a government surplus of €3.18 billion (1.3% of GDP) in 2024 and a primary surplus of €11.4 billion (4.8% of GDP). For January–April 2025, the consolidated primary surplus reached €4.93 billion, up €1.57 billion from the same period last year. Tax revenues increased significantly, especially income tax (+€1.35 billion) and VAT (+€708 million). Spending decreased by €1.58 billion due to lower execution of the Public Investment Program and social benefits, as well as reduced interest payments. The upgrade of Greece’s credit rating to investment grade by Standard & Poor’s was accompanied by increased European participation in the Greek banking system, seen as beneficial for attracting foreign capital. However, delays in implementing the Recovery Fund are flagged as potential obstacles to growth and capital recovery. New US tariffs pose another threat to both the EU and Greece, potentially reducing EU GDP by 0.2% annually during 2025–2027 or up to 0.4% if retaliatory measures are taken. Sectors such as processed vegetables, cement, fossil fuels, and steel products were negatively affected, while others like clay and machinery saw positive impacts. The report concludes with policy recommendations to boost exports, including liquidity support, tax incentives, and stronger involvement from Export Credit Greece.