OECD Economic Outlook – June 2022: Greece

136 

Greece The recovery is expected to slow in 2022. Surging global prices, heightened uncertainty and tightening monetary conditions will be partly offset by disbursements of Greece’s recovery and resilience plan, fiscal support to households and firms, and rising exports and investment. Employment growth is expected to pause temporarily as employers face higher uncertainty, difficulties in hiring workers with relevant skills and rising wages. While supply pressures have risen, remaining spare capacity will dampen price pressures.

Revenues buoyed by rising prices and the recovery will help the government return the budget to a primary surplus in 2023. Using unplanned revenues and savings to rebuild the fiscal surplus, and ensuring support measures are temporary and targeted towards vulnerable households’ income rather than subsidising prices, would further improve fiscal sustainability. Greater fiscal sustainability, along with resolving banks’ remaining non-performing loans, would support Greece achieving an investment-grade sovereign debt rating, improving access to finance. While Greece is shifting its energy supply from Russia, improving energy efficiency and developing renewable sources would support long-term energy security and sustainability.

Surging prices are slowing Greece’s recovery Greece’s economy recovered strongly from the COVID crisis in 2021 and most remaining COVID-related health restrictions were lifted from 1 May 2022. Rising exports and investment, and the end of short-time work schemes contributed to job growth. Employers reported growing difficulties filling vacancies. These trends slowed with the surge in energy prices and the war in Ukraine. Consumer price inflation has reached a 25-year high, and price pressures are broadening, lifting underlying inflation. The government increased the minimum wage by 2% in January and 7% in May 2022, ahead of the rise in prices.

Greece Surging energy prices are lifting inflationary pressures % 12

Weakening confidence is dampening private consumption Balance, s.a.

0

Headline inflation¹ Core inflation¹

10

Y-o-y % changes 20

← Consumer confidence Real private consumption →

-10

15

Weighted median CPI inflation²

8

-20

10

6

-30

5

4

-40

0

2

-50

-5

0

-60

-10

-2

-70

-15

-4

2016

2017

2018

2019

2020

2021

0

-80

2014

2016

2018

2020

2022

-20

1. Headline and core inflation are based harmonised consumer prices. Core inflation excludes food, energy, alcohol and tobacco.

2. The median inflation is the price change of the item at the middle of the distribution of price changes, accounting for the items’ expenditure weights.

Source: OECD Economic Outlook 111 database; Eurostat; and OECD calculations.

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OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 1: PRELIMINARY VERSION © OECD 2022

 137

Greece: Demand, output and prices 2018

Greece GDP at market prices Private consumption Government consumption Gross fixed capital formation

2019

2020

2021

2022

2023

Percentage changes, volume (2015 prices)

Current prices EUR billion

179.6 124.3 35.5 20.0

1.8 1.8 1.7 -3.3

-9.0 -7.9 2.6 -0.3

8.3 7.8 3.7 19.6

2.8 3.5 -1.5 9.0

2.5 1.4 -0.2 12.4

Final domestic demand Stockbuilding¹,²

179.8 3.6

1.3 0.0

-5.0 1.4

8.2 -0.9

3.2 0.0

2.5 0.0

Total domestic demand Exports of goods and services Imports of goods and services Net exports¹

183.4 70.0 73.9 - 3.9

1.5 4.9 3.1 0.6

-3.4 -21.5 -7.6 -5.5

7.0 21.9 16.1 0.7

3.3 16.5 13.2 0.3

2.4 5.8 5.1 -0.1

Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation³ Unemployment rate (% of labour force) General government financial balance⁴ (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition⁵ (% of GDP) Current account balance⁶ (% of GDP)

_ _ _ _ _ _ _ _

0.2 -0.8 2.1 5.4 3.8 0.5 -1.3 0.6 8.8 3.4 0.8 -1.2 -1.1 3.4 3.3 17.3 16.3 14.7 12.4 12.6 1.1 -10.2 -7.4 -4.1 -1.1 204.9 242.3 225.2 213.5 202.8 180.7 206.3 193.3 181.6 170.9 -1.5 -6.6 -5.9 -7.7 -7.6

1. Contributions to changes in real GDP, actual amount in the first column.

2. Including statistical discrepancy.

3. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

4. National Accounts basis. Data also include Eurosystem profits on Greek government bonds remitted back to Greece, and the estimated government support to financial institutions and privatisation proceeds.

5. The Maastricht definition of general government debt includes only loans, debt securities, and currency and deposits, with debt at face value rather than market value.

6. On settlement basis.

Source: OECD Economic Outlook 111 database.

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Greece is primarily exposed to the war in Ukraine through its energy imports from Russia, equivalent to 30% of its total energy consumption. Higher international prices are being passed into domestic energy prices, such as the 79% increase in retail electricity prices in the year to April 2022. Russia and Ukraine are otherwise minor trade partners. Russian tourists generated 1.1% of Greece’s tourism receipts in 2021.

The maritime services sector, which made up 20% of total exports in 2019, is benefiting from high global shipping demand and prices. Greece is also providing dedicated support for approximately 20 000 Ukrainians, adding to the 32 000 refugees from before the war started.

Fiscal support is continuing despite overall consolidation The government plans to achieve a modest budget primary surplus in 2023, although it projects a slower fiscal consolidation than it did in late 2021. It has cut tax and social security contribution rates and recurrent property taxes. It is announcing expanding measures responding to the energy price surge. The total cost for 2022 was EUR 5.4 billion (2.7% of GDP) in May 2022, with higher spending planned, in part financed through Emission Trade Scheme receipts. These broaden access and increase the level of electricity and fuel price subsidies for households and businesses, provide a rebate on fuel costs with generous eligibility criteria, and top-up social transfers for low-income households. Partly offsetting these measures, monetary conditions are tightening in Greece more than elsewhere in the euro area, through widening spreads on OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 1: PRELIMINARY VERSION © OECD 2022

138  government and corporate bond yields as Greece’s sub-investment grade sovereign rating excludes it from the ECB’s standard asset purchase programmes. The ECB has undertaken to provide exceptional support to ensure that monetary conditions in Greece do not materially diverge from elsewhere in the euro area in the event of renewed market fragmentation related to the pandemic.

Higher prices are likely to slow the recovery Surging energy prices, likely to extend into 2023 following the embargo on oil imports from Russia, tighter monetary conditions and disruptions in global trade are projected to slow the recovery considerably.

Inflation pressures and renewed uncertainty are weakening private consumption and softening business confidence, investment and job creation. Government support and implementation of the Recovery and Resilience Plan, worth 1.6% of GDP annually, will provide some offsetting support. Energy subsidies and, from later in 2023, the expected retreat of energy and other international prices will allow headline and, more gradually, core inflation to moderate. Greater stability in the global security situation and energy prices will reduce uncertainty and allow stronger investment and consumer demand to lift growth.

Additional disruptions to energy supply, especially of gas, would amplify current high energy prices, and setback improvements in activity, exports and well-being. Wages rising by more than expected would risk entrenching higher inflation, partially unwinding improved competitiveness and weakening investment and exports. Rising materials costs and scarce skills may drag on the delivery of public investments. Poorly targeted energy price support measures and subsidies may weaken fiscal credibility and the return to an investment-grade sovereign debt rating. Deteriorating economic conditions and rising interest rates risk stalling the improvements to banks’ health by creating new non-performing loans and making it more challenging to securitise existing non-performing loans or to raise capital.

Fiscal policy will need to balance support with fiscal sustainability Ending current fiscal measures as scheduled, and limiting any further measures to well-targeted temporary support for vulnerable households would allow the government to rebuild its primary budget surplus. This would maintain Greece’s reserves to cover contingent liabilities, build fiscal buffers, and support efforts to achieve an investment-grade sovereign rating. Developing the wage-setting system so that social partners negotiate broad agreements on working conditions that reflect workers’ productivity and market conditions, rather than relying on administered adjustments to the minimum wage, would improve labour market performance. Expanding building renovation plans would accelerate inroads into high rates of energy poverty and low energy efficiency, improving energy security and reducing greenhouse gas emissions in the long term.

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 1: PRELIMINARY VERSION © OECD 2022