Greece is now an attractive destination for investments, but the fact that the 45% of foreign direct investment was directed to the real estate market last year raises some concerns about the country’s ability to change its economic model, says Wolfgang Piccoli, co-president and Political Risk consultant at Teneo, in an interview with Vima. The economic analyst believes that to further enhance the country’s investment attractiveness there is an urgent need for improvements in various policy areas such as human skills, taxation, innovation and the judicial system.
What is your assessment of the course of the Greek economy this year, in the medium term, but also in the long term?
“Greece’s GDP grew by 2% in 2023. This is a disappointing performance, even if signs that the economy was slowing were evident in previous announcements on the path of GDP over the past year. The government had projected an expansion of 2.4% in 2023. The revision of GDP figures may help to partially fill this gap, but the fact remains that the overall economic performance in 2023 was not impressive. That said, with growth of 2% Greece has surpassed the Eurozone average (0.5%), a fact that may provide some relief to Athens.
Since 2019, with the exception of 2020, the first year of the pandemic, Greece has seen stronger economic growth than the eurozone. Looking ahead, the government is overly optimistic in its growth assumptions, expecting GDP to grow by 2.9% in 2024. This forecast is much higher than forecasts made by various institutions, including the Bank of of Greece (2.5%), the European Commission (2.3%) and the IMF (2.1%). In this respect, it is worth noting that 2024 comes with a significantly tighter fiscal framework, due to the need to achieve a high primary surplus of more than 2% of GDP, but also due to the return of fiscal rules without the escape clause.”
In your opinion, what are the most important difficulties facing the Greek economy and in which areas do you think there is a need for progress?
“Geopolitics and the unstable international environment are a source of risk. Weak growth in Europe poses a more fundamental downside risk to the economy. Greek GDP growth is historically sensitive to European growth performance. This is not surprising given that 54% of Greek exports go to EU countries and 60%-70% of tourists come from the EU.
A lower rate of absorption of European funds and a slower implementation of the RRF will also affect Greece’s future development path. In the 2023 budget the government expected fixed capital formation to grow by 15% largely helped by benefits from the RRF in the public investment budget and credit expansion of RRF loans through commercial banks. Finally, fixed capital formation grew by just 4% last year. This could be worrying for the Greek authorities, especially given that according to the 2024 budget fixed capital formation is expected to increase again by more than 15% this year. In addition, the catastrophic floods in Central Greece and, in particular, in the Thessaly region may weigh on the economic outlook in the medium term.”
From which sectors did the growth of the Greek economy come?
“Growth in 2023 was broad-based, with all demand-side components, excluding inventories, contributing positively to real GDP growth. Household consumption increased by 1.8%, while exports increased by 3.7% thanks to the excellent performance of the tourism sector which favored service exports that offset the decline in goods exports.”
How would you assess the interest of foreign investors to invest in Greece? They invest in “traditional” sectors, such as tourism, or they are also interested in new sectors. And how do you see the interest of foreign investors to invest in the Stock Exchange?
“Foreign direct investment reached €4.48 billion in 2023, down 40% from the record €7.53 billion recorded the previous year. It is estimated that over 45% of FDI was channeled into the real estate market. This is one of a variety of factors that raise some concerns about the country’s ability to change its economic model. The strong interest of international investors in Greek assets was positive, as reflected in the recently completed first round of sales of the HFSF shares to the four systemic banks. Greece is now an attractive destination for investment, but to maintain momentum and ideally enhance attractiveness there is an urgent need for improvements in various policy areas such as human skills, taxation, innovation and the judicial system.”
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