Greece

In 2022, the Greek economy grew at a much faster pace than the Eurozone average (+5.9% vs +3.3% in real terms) and GDP was 6.0% above pre-pandemic levels. But the recovery paused in Q1 2023, with GDP declining by -0.1% q/q, given the prolonged uncertainty and challenges. Household consumption remained resilient (up +1.4% q/q) while fixed investment declined slightly (-1.0%). At the same time, net foreign demand contributed positively to growth as exports increased solidly (+5.7%) while imports decreased markedly (-5.1%). The Q1 reading suggests weakening momentum in 2023, clouded by surging interest rates and still elevated uncertainty. We remain cautious over the outlook and expect real GDP growth to normalize and reach +1.2% in 2023, and just below +1.0% in 2024.

Private consumption was one of the main drivers of the recovery and expanded by more than +7.0% both in 2021 and 2022. However, we expect private spending to slow later in 2023 due to elevated uncertainty and surging interest rates, even though inflation easing provides some cushion to the household and corporate consumption outlook. Investment continued to perform solidly in 2022 and will continue to be supported in the coming years by the inflows of Next Generation EU funds. Greece is expected to receive EUR30.5bn (EUR12.7bn in loans and EUR17.8 in grants) amounting to some 17% of GDP over the period 2021-2026. This will create an additional impulse for public and private investment. Finally, intense tourism activity over the summer should provide support to net trade.

Public finances have been impacted by the support measures against the energy crisis in 2021-2022 (5.2% of GDP), following the efforts already made during the pandemic. The fiscal deficit decreased from 8.2% of GDP in 2021 to 5.6% in 2022. The government balance should improve in 2023 but higher interest rates will add challenges to the fiscal outlook. As a debtor, Greece has recently fully repaid its IMF loan - two years in advance - sending positive signals to the markets. Most public debt remains in official hands and has secured long maturity, providing some relief in the short term and reducing rollover risks.

The labor market experienced a steady recovery, driven by declining numbers of unemployed workers. The unemployment rate was down to 10.8% in May 2023 from the pandemic peak of 17.8% in June 2020.

The Greek business environment has improved in recent years, helped by the digitalization of public services, reduction in corporate taxes, unification of the social security system and reform of the labor and product markets. Yet, it remains heavily regulated and complex. Greece also has one of the slowest court systems in Europe.  According to the OECD, Greece has one of the more restrictive and heavily regulated business environments while corruption in public administration is perceived to still be relatively high. Many of these challenges will be tackled by the NGEU-related reforms.

On the political side, under a new legislative law, the ruling New Democracy party won the June 2023 legislative election despite not having achieved an absolute majority in May. New Democracy secured almost 41% of the votes while Syriza lost further ground, gathering 17.8% of the votes.