In the 2023 election year, the Greek economy faces ten major challenges in a difficult environment.
Inflation is expected to remain high for at least the first quarter and the European Central Bank is set to announce another rate hike in February, with a possibility of a sixth straight hike in March. It is also possible that most of the now 20 countries in the euro zone are going through a recession for the second quarter in a row.
1. The biggest challenge is to achieve real growth in 2023. It’s expected to be slower than 2022 — 1.8% versus 5.6% — but even achieving that would require growth in key components of gross domestic product, notably consumption and investment.
2. In nominal terms, GDP must increase by EUR 14 billion in 2023. That means both real growth and average annual inflation slowing to 5%. The combination will bring Greece’s GDP to 224 billion euros. Nominal GDP is taken into account when determining the debt ratio and will be a very important factor, especially in 2023, in order to achieve the target debt upgrade to investment grade for the first time in 13 years.
3. Tourism receipts in 2022 helped offset GDP losses stemming from rising energy prices and the resulting widening trade gap. επιδιωχθεί η ανάκτηση της επενδυτικής βαθμίδας. Tourism revenues must remain at the same level, around €17 billion, or more than 95% of last year before the pandemic (2019), a task made more difficult by the recession hitting some of the main visitor source countries.
4. A nominal GDP of €224 billion and real growth will be difficult to achieve without stimulating private consumption. The task now becomes even more difficult as public consumption suffers in the name of meeting fiscal targets such as a primary budget surplus. The target is a 1% increase in private consumption, but inflation and the resulting higher borrowing costs complicate the challenge. Budgetary income support measures will help; but a crucial factor will be the conditions and psychology of the national and international markets.
5. The wise use of the European Union Recovery and Resilience Fund and the Structural Funds will largely determine the growth of private investment. The target of 15.5% growth is quite ambitious. Credit expansion from banks and real estate investments will also be very important. Real estate has to reckon with both higher interest rates and rising building material prices.
6. Inflation growth needs to slow to around half of 2022 levels – 5% instead of almost 10%. The so-called base effect helps here, but also the uncertainty of how energy prices will develop and how inflation expectations will consolidate at what level.
7. Despite slower economic growth, there should be a net increase in jobs. The aim is to further reduce the unemployment rate to 12.6%.
8. The transition from primary budget deficits to surpluses requires a fiscal adjustment of €5 billion. The phasing out of the many income support measures introduced in 2022 will help.
9. Despite the tax cuts (e.g. maintaining lower VAT rates for a number of services in the first half of 2023, abolition of the so-called solidarity surcharge), tax revenues must increase by 1.7 billion euros to just under 58 billion euros.
10. Tackling the challenges so far will help limit nominal debt growth to no more than €1-2 billion for a total of €356-357 billion and even below 160% of GDP. The key condition is to achieve the primary surplus and not repeat the pre-election curse of public spending derailing in the pursuit of votes.
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