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The "x-ray" of the Greek Economy - The next day T

he country is marching towards the elections within an environment of fiscal stability and better economic performance, confirmed by all sides: by international organizations (IMF, EU), by rating agencies, by markets, as well as by the course of the budget, that describe the progress of the Greek Economy. The country's fiscal figures are on track, with a return to primary surpluses already from 2022, as last year's fiscal image is significantly better than the budget’s forecasts. The primary surplus in the first quarter of the year, amounted to 3.07 billion Euros, while it was expected to rise to the amount of just 28 million Euros. In fact, the economic progress is the reason why the markets are calm, despite the uncertainty of the electoral race, as noted in an article by the “Economist”. The growth rates of the Greek economy are also supporting the stock market. The upward cycle in which the Greek economy is moving, will continue, is the estimation of the leading economists of international banks, rating agencies and think tanks, even considering that it is relatively protected from the increase of interest rates worldwide, while it will continue to grow in the coming years well above the Eurozone average. One after another, foreign agencies estimate that the recovery in Greece will continue and despite the fact that economic growth has slowed down in most Eurozone countries, Greece continues to recover and outperform in terms of GNP growth. The twenty-year record in Foreign Direct Investments and the doubling of exports as a percentage of the GNP, compared to pre-crisis levels, are some good omens, as well as the course of public debt in relation to the GNP which is estimated, as a consequence of high inflation, that will decline below 150% of the GNP in 2025, from 206% of the GNP in 2020. Greece reduced its debt ratio by 23.3% in 2022 and this is the best performance within the European Union. The Stability Program submitted

THE BENEFITS OF INSURANCE COMPANIES ► The estimates for the course of the economic figures, against the background of the elections. ► The upward cycle of the Greek Economy and the risks. ► Investment resources of 15 billion Euros and foreign investments, as a “fuel" for the Economy by Greece to the European Commission, contains ambitious goals for the next four years. According to the program, by 2026, the debt ratio should decrease by 36 percentage points to 135,2% and in case that this forecast is verified, Greece would no longer be the country with the largest deficit, as Italy with surpass it, with a forecast of 140,4% in 2026. The return of the economy to a smooth upward course, at least until 2026, is described in the forecasts of the revised Stability Program 2023-2026 as “the next day” after the end of the four years of enhanced supervision. Both macroeconomic and fiscal scenarios for the Economy indicate that Greece will accelerate its convergence with the rest of the

Eurozone member-states over the next four years. A crucial stage will be the recovery of the investment grade. The development scenario calls for average annual economic growth of 2,6% for the four-year period 2023-2026.

The Risks Of course, the implementation of this optimistic scenario for the Greek economy is "threatened" by serious risks. The first short-term risk is the non-formation of a stable government with a 4-year horizon, which could upset fiscal stability and postpone for a long time the recovery of the investment grade. A negative political development could delay the absorption of community funds coming from the Recovery Fund, resulting in a

reduction of investments and a lower growth rate of the Greek economy. There are also external risks, such as the maintenance of high inflation in the EU, combined with the persistence of euro interest rates at high levels, a possible banking crisis in Europe, or a resurgence of the energy crisis.

Inflation Inflation in Greece fell to 4,5% in April 2023, compared to the 7% of the Eurozone, recording the 5th lowest performance among the Eurozone countries. The IMF now estimates that inflation in Greece will be 4% this year (against a previous forecast of 3,2% inflation this year) and 2,9% in 2024 (against a previous forecast of 3,2% inflation). At the same time, analysts from 41 banking houses estimate that it will take until 2025 for inflation to reach the level of 2%, which is the goal of the European Central Bank.

Development At the end of last year, with inflation being at very high levels, the big question for Greece was whether it would manage to avoid recession in 2023. Five months later, expectations are created for a pleasant growth surprise, which could even reach 3%. In 2023, Greece is expected to be found in a different stage of the economic cycle, than other Eurozone economies, presenting improved resilience and competitiveness, while GNP growth will come from tourism, consumption and investment. A

decisive factor will be the resources of the Recovery Fund, as the disbursement of 11 billion Euros has already been approved in Greece, which shows one of the best relative performances in Europe. The Greek development story wins the estimations of international houses. Even the difficult IMF predicts for 2023 growth of the Greek economy by 2.6%, more than three times the 0.8% it predicts for the Eurozone. The IMF predicts a growth rate of 2,6% against the 1,8% which was the estimation last October, while for 2024 it predicts a growth of 1,5% from 1,4%. The improved forecast for the Greek Economy comes amid a shaky recovery of the global Economy, for which the Fund notes that growth prospects over the next five years are the lowest in decades. As far as Eurozone is concerned, it NEXTDEAL #518 31 ΜΑΪΟΥ 2023

forecasts a GNP growth of 0,8% this year and 1,4% in 2024, compared to the 0,5% and 1,5% it estimated last October. The European Commission will raise its predictions for the growth of the Greek economy in its spring forecasts. For 2023, it is expected to raise its forecast to above 2% from the 1,2% it estimated in February, and for 2024 it is expected to increase its forecast to above 2,5%, from the 2,2% that was the estimation three months earlier. The Bank of Greece predicts a growth of 2.2%, much higher than the Eurozone average and significantly better than the previous

forecast of 1,5% for 2023, while IOBE upgrades its forecasts at 2,4%, from 1,4%.

Investments If today, there are about 100 investment organizations operating and investing in Greece, this number will approximately increase tenfold as soon as we obtain the investment grade, according to an earlier statement by the Governor of the Bank of Greece. The fact that we haven’t yet reached an investment grade, explains why we are not on the radars of large long-term funds, the activity of which will help to cover

the large investment gap of the Greek Economy, which reaches 10% of the GNP on an annual basis. The ten-year Greek crisis left us with an investment gap of 100 billion Euros. Despite the significant improvement of the economic environment in recent years and the record inflow of foreign capital (7,2 billion Euros in 2022), the formation of fixed capital investments, a critical parameter for the development, remains subdued. It only increased by 13,7% in 2022, compared to an increase of 22,7% in the European Union. We need to reach fixed capital investment growth rates

IMF: Forecasts for primary surpluses and debt 2023

2024

2025

2026

2027

2028

Primary Surplus (% of the GNP)

0,4

1,4

1,6

1,8

2,0

Debt (% of the GNP)

166,0

160,5

155,8

151,6

147,5

143,6

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significantly higher than 20% per year, and for many years, to significantly improve the country's productivity and international competitiveness. Foreign Direct Investment (FDI) hit a 20-year record in 2022, reaching 7,22 billion Euros, according to data released from the Bank of Greece, but to a large extent, this concerns acquisitions or privatizations of already existing businesses, as well as the purchase of real estate. The creation of new productive investments is increasing, but still represents a small percentage of the total investments. More specifically, out of the total FDIs mounting to 7.220 billion Euros in 2022, 2,3 billion (31,8%) were related to mergers and acquisitions. 1.975 billion Euros (27,3%) were related to the purchase of real estate. The purchase of new shares, which represents the creation of new productive investments or participation in share capital increases, accounted for 1.979 billion Euros (27,4% of the total). According to analysts, in 2023, investments will be the most important “shield” of the Greek economy, creating a “defense zone” for the economy, with resources of more than 15 billion Euros, thus giving a boost of almost eight percentage points. “The main drivers of investments”, as executives of Alpha Bank point out, “are expected to be the resources from the Public Investment Program (PIP) and the Recovery Fund, the total amount of which for 2023 is estimated at 15,3 billion Euros. The importance of the quick absorption of the Recovery Fund’s resources is, therefore, critical to further improve the economic environment in Greece and attract investments. The frontloaded absorption and diffusion of European funds into the Greek economy –given the fact that our country has already collected 25% of the total funds of the Recovery Fund, it is expected to mobilize additional private investment resources, creating, at the same time, expectations for a new record of Foreign Direct Investments in our country”.

IMF: Estimations for Public Debt Starting this year, Greece will return to primary surpluses, according to the estimates of the

Fiscal Monitor of the International Monetary Fund, after a two-year period, during which there was a significant increase in spending. In particular, the primary surplus will rise to 0,4% in 2023 and will further rise to 2% by 2028. At the same time, there will be a steady de-escalation of the public debt without an increase in taxes. IMF foresees public debt at 177,4% of the GNP in 2022. Years of significant de-escalation follow, as at the end of 2023 it estimates that it will be at 166% of the GNP and in 2024 at 160,5%. High inflation, that reached 9,3% on an annual basis for 2022, was the “cure” of the huge fiscal adjustment we had in debt and deficit last year. An indirect consequence of inflation is that it “inflates” nominal GNP, thereby boosting incomes as long as consumption does not fall. Taxes, such as VAT, are applied to nominal prices and not to the deflated ones. As prices rise, the economy's turnover can increase and nominal GNP can be boosted. This increase can also improve the debt-to-GNP picture. The IMF estimates that the contribution of inflation to debt reduction as a percentage of GNP was approximately 13% of the Greek GNP. Real GNP growth of 5,9% reduced debt by approximately 12%. The amount of public debt in absolute numbers exceeded this of the peak of the recent debt crisis in 2011 and reached 356,256 million Euros (171,3% of the GNP), the highest since the country entered the Eurozone. Government guarantees – potential debt– exceeded 29,8 billion Euros, by far the largest since the country's entry into the Eurozone. However, despite its high levels, Greek public debt is considered sustainable by the European Commission, due to its special characteristics. But the country has a long way to go in order to reduce the debt: the repayment of the ESM and EFSF aid loans will not start before 2034 and will last until 2070. According to some analysts, Greek debt servicing is to a great extent independent of the movements of the Greek bonds, for two reasons. First, Greece's debt is mainly in the form of official loans (EFSF, ESM, IMF, etc.). Second, as part of the different bailout programs, the maturity of Greek debt was extended to 20 years,