OECD Economic Outlook – December 2021: Greece

130 

Greece Greece’s GDP is projected to increase by 6.7% in 2021 and just under 5% in 2022, before growth moderates in 2023. As containment measures eased in April 2021, economic activity rebounded, supported by a stronger-than-expected summer tourist season. Government support and investments will further contribute to the recovery of employment and consumption. High levels of spare capacity will likely limit the rise in inflation. A worsening in the health situation and investment delays would imperil the projected recovery.

The government will continue to gradually withdraw emergency fiscal support measures as the sanitary situation evolves, while its recovery and resilience plan is expected to boost activity and productivity through investments in the green transition, upgrading digital infrastructure and skills, and supporting private firms’ investments. Realising the projected acceleration in investment will require resolving banks’ remaining non-performing loans and tax credits, and improving the investment climate and the public sector’s performance. Sustaining the recovery will require activating workers and raising adults’ skills to lift employment and productivity.

Greece recovered strongly after lifting containment measures Greece’s economy recovered strongly following the progressive lifting of containment measures from April 2021. By September, business confidence had recovered to post-financial crisis highs as businesses re-opened. International air arrivals during July-August reached more than 60% of their 2019 peak, boosting incomes and supporting the recovery of consumption and employment. Employment grew by 9.9% between April and September 2021. Although bank health improved as banks cleared 38% of their non-performing loans between March and June 2021, reducing the share of non-performing loans to 20.3%, new lending to the private sector slowed. Three agencies upgraded their rating of Greece’s public debt to be close to investment grade. The annual rate of headline inflation rose to 3.4% in October, largely due to rising energy prices, while core inflation only rose to 0.2%.

Greece The lifting of COVID restrictions has helped return business confidence to pre-pandemic peaks Index, 100 = normal 130 120

Economic ← sentiment¹

Google index of visits to retail and recreation places² →

The projected recovery will require activating workers

% changes 40

0

100

-20

90

-40

80

-60

2019

2020

2021

% of 15-74 year-olds, s.a.

62

← Employment

20

110

70

Index 2016Q1 = 100, s.a.

120

-80

Participation rate →

115

60

110

58

105

56

100

54

95

2016

2017

2018

2019

2020

2021

2022

2023

52

1. The Economic Sentiment Indicator tracks overall economic activity based on a selection of questions asked to industry, services, retail trade and construction industry participants and consumers in the EU Harmonised Business and Consumer Surveys.

2. Google measures visitor numbers recorded on mobile devices to specific categories of location (e.g. grocery stores; parks; train stations) every day and compares this change relative to baseline day before the pandemic outbreak (the median value for the 5-week period from January 3 to February 6, 2020). A 7-day moving average is applied.

Source: Eurostat; Google COVID-19 Community Mobility Reports via Our World in Data; and OECD Economic Outlook 110 database.

StatLink 2 https://stat.link/0a6uio OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 2: PRELIMINARY VERSION © OECD 2021

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Greece: Demand, output and prices 2018

Greece GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding¹,² Total domestic demand Exports of goods and services Imports of goods and services Net exports¹ 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)

2019

_ _ _ _ _ _ _ _

2021

2022

2023

Percentage changes, volume (2015 prices)

Current prices EUR billion

179.6 124.3 35.5 20.0 179.8 3.6 183.4 70.0 73.9 - 3.9

2020

1.8 1.8 1.7 -3.3 1.2 0.0 1.0 4.9 3.1 0.6

-9.0 -7.9 2.6 -0.3 -4.9 1.4 -4.0 -21.5 -7.6 -5.5

6.7 2.1 4.6 14.0 4.1 1.7 5.8 14.2 10.9 0.2

4.8 4.4 -2.1 17.3 4.6 0.0 4.4 13.0 8.1 1.1

2.9 2.1 -0.6 10.2 2.7 0.0 2.6 5.1 4.2 0.0

0.2 -0.8 2.6 3.1 1.5 0.5 -1.3 0.4 3.1 1.5 0.8 -1.2 -1.2 1.9 1.6 17.3 16.3 14.6 12.9 12.7 1.1 -10.1 -9.6 -4.0 -1.1 205.0 243.0 228.8 217.3 211.4 180.7 206.3 192.0 180.6 174.6 -1.5 -6.6 -7.2 -6.7 -6.5

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 110 database.

StatLink 2 https://stat.link/hxa5b9

Expectations for future price rises have been rising and since mid-2021 have been above averages of recent years in manufacturing, construction and retail. Rates of new COVID-19 infections and deaths have been above most other OECD countries since July 2021, reflecting lagging vaccination rates, with 61.5% of the population fully vaccinated by October 2021. Recent measures, such as requiring unvaccinated people to be tested to access a range of public services, may encourage greater vaccinations.

Support will shift from emergency measures to the recovery and resilience plan The government maintained emergency support measures throughout 2021 worth EUR 15.6 billion (8.8% of 2021 GDP). Several temporary measures were extended until 2022 but limited in size to EUR 2.9 billion.

In response to rising energy prices, the government expanded transfers to households by EUR 500 million.

Over the coming years government measures will shift to supporting a sustained recovery. Greece’s recovery and resilience plan, “Greece 2.0”, foresees disbursing EUR 0.6 billion (0.3% of 2021 GDP) in 2021, EUR 3.2 billion in 2022, and EUR 3.4 billion in 2023, funded through Next Generation EU grants.

Measures include investments and policy reforms to support the green and digital transitions. The budget is projected to return to a primary surplus above 1% of GDP by 2023, consistent with the government’s fiscal strategy.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 2: PRELIMINARY VERSION © OECD 2021

132 

Investments and an improved business climate will drive sustained growth Strong growth is projected as an improving business climate and the recovery and resilience plan boost employment and investment. Government support will continue to bolster incomes and consumption into 2022, which will be further supported by a 2% minimum wage increase at the start of 2022. Exports will be aided by rebounding global demand and the recovery in global tourism. Reform efforts are expected to promote business confidence and contribute to higher employment rates by raising labour market participation, while infrastructure and business investments are projected to support employment and improve productivity. The pass-through of higher energy and global prices into Greece’s consumer prices is projected to be checked by the economy’s ongoing spare capacity. A key risk is that a worsening health situation may lead to new travel restrictions and curtail the recovery in tourism. Lags in implementing reforms and investments would exacerbate scarring from businesses failures and workers dropping out of the labour market, and delay improvements in the economy’s capacity and productivity.

Mobilising private investment would boost productivity and the green transition The evolving fiscal support can help sustain the recovery in the face of ongoing headwinds and uncertainty.

Public investment should be strengthened to support growth. This, together with a medium-term fiscal plan, would contribute to fiscal sustainability. Better targeting support measures, such as cuts in some VAT rates for sectors such as entertainment, would increase their impact. Refocusing support towards active labour market programmes and training, by building on recent reforms to vocational education and implementing plans to increase the capacity of the public employment service and promote training, would help employers recruit workers with the needed skills. Implementing measures to raise public sector effectiveness laid out in Greece 2.0, such as further progress in the digitalisation of public services, are crucial for improving the investment climate and achieving the ambitious expansion in public investment.

Improving access to finance for investment by completing efforts to restore banks’ health would further enhance the impact of Greece 2.0. Implementing a comprehensive plan to adapt to and to mitigate climate change, which is already affecting Greece, will be imperative for sustaining long-term growth.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 2: PRELIMINARY VERSION © OECD 2021