Greece country note: OECD Economic Outlook, May 2021

 63

Greece Greece’s economy is projected to grow by 3.8% in 2021 and 5.0% in 2022. The easing of travel restrictions is expected to support services activity and exports. The importance of tourism makes Greece’s outlook especially reliant on successful vaccination campaigns globally. Rising disbursements of Greece’s substantial EU-funded Recovery and Resilience Plan will support investment in 2021 and 2022, if recent reforms succeed in encouraging swifter and higher-quality public capital spending and if businesses productively make use of the Plan’s financing facilities.

As containment measures are lifted and activity gradually recovers, income support can be refocused to encourage receivers to enrol in quality vocational and reskilling programmes. Support policies have encouraged banks to restart lending to businesses, but bankruptcies and non-performing loans are likely to rise as support is withdrawn, underscoring the urgency to raise banks’ asset quality. Raising the public administration’s effectiveness would help improve the investment climate and the implementation of recent reforms.

Greece extended strict containment measures to control a third wave of infections More contagious COVID-19 variants brought Greece a third wave of infections. From November, many education institutions and consumer service sectors were closed, telework was encouraged and population mobility was limited. Nonetheless, by early April, recorded infection rates and the number of patients in intensive care had risen above the peaks of earlier waves. As case numbers stabilised and much of the vulnerable population was vaccinated, Greece started progressively reopening from late-April, first educational and then many service and tourism facilities. Greece’s overall vaccination rate is near the EU average, and it has provided at least 85% of all its vaccine doses to the priority groups of healthcare workers and those aged over 60.

Greece Greece started to relax strict containment measures in late April

Banks are increasing lending to businesses

Oxford COVID-19 Government Response Tracker¹, 7-day moving averages

New lending to non-financial corporations, 12-month moving average

Index, 100 = max 100

EUR million 600 500

80

400 300

60

200 100

40

Greece

0

European Union

20

-100

OECD

-200 0 Mar-20

Jun-20

Sep-20

Dec-20

Mar-21

0 Jun-21

0

2015

2016

2017

2018

2019

2020

-300

1. The Oxford COVID-19 Government Response Tracker index is a composite measure based on nine response indicators including school closures, workplace closures, and travel bans, and is scaled from 0 (no restrictions) to 100 (highest category of restrictions).

Source: Oxford University via Our World in Data; and Bank of Greece.

StatLink 2 https://stat.link/vd526t

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

64 

Greece: Demand, output and prices 2017

2018

Current prices EUR billion

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 definition (% of GDP) Current account balance5 (% of GDP)

177.2 121.7 36.2 20.8 178.6 1.2 179.8 62.0 64.6 - 2.7 _ _ _ _ _ _ _ _

2019

2020

2021

2022

Percentage changes, volume (2015 prices)

1.6 2.3 -4.2 -6.6 -0.3 1.4 1.3 9.1 8.0 0.3

1.9 1.9 1.2 -4.6 1.0 0.1 0.9 4.8 3.0 0.7

-8.2 -5.2 2.7 -0.6 -3.1 0.7 -2.8 -21.7 -6.8 -5.8

3.8 1.6 2.1 11.5 2.8 0.0 3.2 4.9 1.5 0.9

5.0 3.0 -1.4 20.0 4.1 0.0 3.9 13.3 9.1 0.7

-0.1 0.2 -1.5 0.0 1.2 0.8 0.5 -1.3 0.2 1.2 0.3 0.8 -1.2 -0.7 1.0 19.3 17.3 16.3 15.9 15.6 0.9 1.1 -9.7 -10.1 -3.7 201.3 204.8 241.9 237.4 227.9 186.2 180.5 205.6 201.1 191.6 -2.9 -1.5 -6.7 -6.5 -5.2

1.

2.

3.

4.

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

Including statistical discrepancy.

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

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. On settlement basis.

Source: OECD Economic Outlook 109 database.

StatLink 2 https://stat.link/0o1kf2

Containment measures have reduced activity, but by less than in 2020 Containment restrictions introduced in November brought tourism to a near halt, and significantly reduced business in many other consumer services. However, the losses have been less than during the earlier lockdown. Turnover in February 2021 was about 50% lower than a year earlier in the sectors required to close. Manufacturing, including of medical and pharmaceuticals products, was more robust in late 2020 and the first months of 2021. Banks have increased new lending to businesses, supported by the government’s loan guarantees and interest subsidies. Households continued to increase their savings through the latest lockdown – excess bank deposits rose by over 7% of GDP in 2020. Housing construction has grown strongly. Overall, firms hired workers in the first months of 2021, even as they suspended contracts of 260 thousand workers.

The government has prolonged support and announced a substantial recovery plan The government has doubled its planned 2021 support to the economy, to EUR 14.3 billion (8.3% of 2021 GDP). The latest support measures extend existing programmes, such as income support for the self-employed, furloughed workers and the unemployed, and reduced tax and social insurance contributions for businesses. The government also introduced a new guarantee scheme and loan subsidy

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

 65 programme directed towards smaller enterprises. Moratoria apply to the servicing of 12% of all outstanding business and household loans, one-third of which are assessed to be in a high-credit-risk category. The government will provide grants and low-cost loans to help businesses rebuild their stocks and working capital. Greece’s Recovery and Resilience Plan provides for EUR 4 billion (2.3% of GDP) of grants and loans in 2021, and EUR 5.3 billion each year from 2022, to support digital and green investments, strengthen skills and employment, boost private investment, and transform economic and public institutions.

A pick-up in tourism and the recovery plan will drive the recovery The economy’s recovery is projected to accelerate into 2022 as services and travel activity resume and disbursements of Greece’s Recovery and Resilience Plan support investment. Exports are projected to recover gradually from the second quarter of 2021, led by tourists arriving from countries with high vaccination rates. Tourism receipts in 2021 are projected to recover almost half of the decline of 2020. The strength in global merchandise trade is projected to support Greece’s shipping services and goods exports.

These developments will boost employment and households’ incomes, which, along with a modest drawdown in savings accumulated over the crisis, will support a recovery in consumption. Economic slack will damp price pressures, while reforms underway are likely to add flexibility to the labour market. The recovery would be set back by more than in most countries, if vaccination campaigns are less effective than expected at enabling travel and tourism to resume. If recent reforms contribute less than expected to improving Greece’s public investment spending, the strengthening in domestic activity, employment and long-term prospects would be smaller than projected.

Upgrading skills and improving the investment climate would strengthen the recovery As the recovery in employment-intensive services is likely to be gradual, refocusing income support measures on active labour market programmes and training would help prevent poverty or longer-term unemployment from rising. The likely harm to public finances and banks’ asset quality from rising bankruptcies accentuates the urgency of further measures to address non-performing loans and banks’ deferred tax credits. This will require actions in addition to the recent extension of the “Hercules” asset protection scheme. Greece’s Recovery and Resilience Plan includes many measures that can boost productivity and environmental sustainability in the longer term, and will require swift and sustained implementation. The Plan’s measures to improve the effectiveness of public administration can do much to improve the business environment.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021