An increase in Greek GDP by 2.1% is predicted for 2024 and maintenance of a generally corresponding growth rate in 2025 and 2026, supported by the implementation of the Recovery and Resilience Plan, the Commission predicts for Greece in its autumn macroeconomic assessments, while pointing out that the headline deficit is expected to decline from 1.3% of GDP in 2023 to 0.6% of GDP in 2024, reflecting an increase in the primary surplus from 2.1% of GDP in 2023 to 2.9% this year.
This decrease is largely due to the moderate increase in current expenditure and the increase in income tax revenues. By 2026, the reduction in public debt will be close to 140% of GDP.
Unemployment, currently below 10%, is expected to continue its downward trend but more slowly than in the past. Inflation is forecast at 3.0% in 2024 and is expected to moderate only gradually to around 1.9% by 2026.
The employment rate rose to 54.9% (15-74 year olds) in seasonally adjusted terms in the second quarter of 2024, but remains one of the lowest in the EU
Commission: Growth will remain robust
The Greek economy recorded steady growth of 2.1% year-on-year in the first half of 2024, driven mainly by domestic demand, while net exports are slowing growth, as estimated by the Commission.
After minimum wage increases, private consumption benefited from relatively faster wage growth for lower-income households that tend to be more propensity to consume. Equipment investment accelerated alongside a strong recovery in corporate credit expansion, while rising imports accompanied by sluggish export growth caused net exports to decline. Thanks to strong domestic demand, real GDP growth is expected to average 2.1% in 2024, according to Commission forecasts.
Going forward, private consumption is set to continue growing at a strong pace, supported by steady real income growth. Investment is projected to accelerate further, peaking near 9% in 2025, as the implementation of the Recovery Fund increasingly shifts from reforms to investment and financing conditions improve.
The recovery in external demand is expected to benefit export growth, further supported by cost competitiveness gains accumulated in the past and structural reforms aimed at improving export performance. Import growth is projected to remain strong given the high import content of investment. Overall, GDP growth is projected to remain above long-term growth potential and is projected at 2.3% and 2.2% in 2025 and 2026, respectively.
Structural challenges and the forecast for the labor market
The employment rate rose to 54.9% (people aged 15-74) in seasonally adjusted terms in the second quarter of 2024, but remains one of the lowest in the EU. The unemployment rate fell to 9.5% in August, although remains one of the highest in the EU.
Vacancy rates increased further in the first half of 2024, especially in construction, tourism and highly skilled sectors. Employment growth is set to continue, albeit at a slower pace, as skills mismatches and structural bottlenecks, including a lack of child and elderly care solutions or a tight regulatory framework for part-time work, limit job growth supply.
The unemployment rate is projected to fall to around 9.0% by 2026, the lowest level in a decade. Real wages per worker are expected to rise by an average of 1.1% annually over the forecast horizon, also supported by the decline in social security contributions.
Inflation to continue its decline, albeit at a slow pace
Headline inflation averaged an annualized 3.1% in the third quarter of 2024, about 1 a.m. above the euro area average. Deflation was restrained by an acceleration in service prices, the impact of the 2023 floods on food prices and the recent rise in electricity prices.
Inflation is expected to continue its decline in the final quarter of 2024, but wage pressures fueled by growing labor shortages and minimum wage increases are expected to put upward pressure on prices going forward.
Headline inflation is forecast at 3.0%, 2.4% and 1.9% in 2024, 2025 and 2026, respectively. Inflation excluding energy and food is projected to remain higher over the forecast horizon, at 3.4%, 2.7% and 2.0% in 2024, 2025 and 2026, respectively.
Reduction of public debt
The headline deficit is expected to decline from 1.3% of GDP in 2023 to 0.6% of GDP in 2024, reflecting an increase in the primary surplus from 2.1% of GDP in 2023 to 2.9% this year, the Commission estimates . This decrease is largely due to the moderate increase in current expenditure and the increase in income tax revenues.
In 2025, the headline deficit is expected to narrow further to 0.1% of GDP, mainly due to a reduction in interest expenditure due to the reduction in short-term interest rates in 2025. This forecast affects the better performance of 2024, as well as a set of new fiscal measures announced this year with a net impact of 0.2% of GDP. On the expenditure side, public sector wages are expected to increase in April 2025 in order to bring the basic wage in the public sector in line with the minimum wage in the private sector. On the revenue side, a reduction of the insurance contribution rate by 1 p.m. is foreseen. and an increase in the hotel overnight tax was announced. The fiscal stance is projected to be expansionary in 2025, following a contractionary fiscal stance in 2024.
In 2026, the general government balance is expected to turn into a surplus of 0.2% of GDP amid favorable macroeconomic developments. This improvement is expected to come from increased tax revenues and social security contributions that offset increased spending on public pension benefits and wages. The fiscal stance is projected to remain expansionary in 2026.
The public debt-to-GDP ratio has been declining in recent years and is projected to reach 153.1% in 2024, before falling further to 146.8% of GDP in 2025 and 142.7% in 2026. The decline is due to primary surpluses, nominal growth and the reduction of cash reserves in 2024, the Commission points out.
The fiscal outlook remains subject to country-specific risks. Downside risks stem from pending legal cases, mainly the court cases against the Public Property Company (ETAD). On the other hand, the government’s efforts to increase tax compliance through digitization may yield higher revenues in 2025.
Source OT
#Commission #Sees #growth #Greece
