The recovery of the Greek economy from the Covid-19 crisis was strong, supported by the continuation of reforms, the Organisation for Economic Cooperation and Development (OECD) said in an Economic Survey on Greece which was presented by OECD Secretary-General Mathias Cormann alongside Greek Primer Minister Kyriakos Mitsotakis on Tuesday.
The survey said that Greece’s strong economic rebound from the COVID-19 crisis is being put to the test by surging energy and food prices and renewed global uncertainty.
It said among others that continued policy reforms over recent years have been a key factor behind the country’s robust post-pandemic recovery and have put the economy in a stronger position to face current headwinds.
GDP has returned to pre-pandemic levels, helped by effective government support, a revival in tourism and exports, and improved investor and consumer confidence.
Employment growth has been strong, creating over a quarter of a million new jobs since before the start of the pandemic, reducing the unemployment rate to a 12-year low of 11.6%.
To sustain the recovery, the Survey recommends better allocation of public spending, strengthening public revenues, improving the functioning of the labor market and keeping up efforts to create a more dynamic business sector.
Structural reforms are the key to continued economic and social progress, the Survey said, as high energy and other key commodity prices, especially since Russia’s war of aggression against Ukraine, are slowing Greece’s recovery. Inflation peaked at 12.1% in October 2022 – its highest rates in 25 years – which is weakening demand, delaying investment and setting back recent gains in purchasing power for households.
GDP growth is expected to moderate from 5.1% in 2022 to near 1% in 2023 and recover to approach 2% in 2024.
To buffer the inflation shock, the government has expanded energy and fuel price subsidies. This has, however, delayed the return of the primary budget surplus to its medium-term target of 1.5% to 2% of GDP, which weighs on Greece’s ability to access less expensive financing for investment.
While reducing high rates of poverty, the Greek economy still leaves many people behind, the survey said. The share of youth in work lags other OECD countries, despite recent improvements.
Legal reforms are improving gender equality but, in practice, and despite progress, relatively few women earn an income from work.
Greece benefits less than it could from the skills of its foreign-born workforce, even as employers across a growing number of sectors report increasing difficulties recruiting staff.
The government’s ‘Greece 2.0’ reform and investment plan for 2021-26 aims to address many of the economic challenges facing the country through measures to improve the business climate, advance digitalisation, support the green economy transition and improve training and skills. The survey said that realising the full potential of the plan will require concerted effort to improve how the public sector operates and delivers but, if well implemented, it will substantially raise growth prospects and incomes.
The Survey set out a number of recommendations to help sustain the recovery, raise incomes, and achieve the transition to a net zero emission economy. They include keeping debt-to-GDP ratios on a downward path by returning the primary budget balance to surplus from 2023 and to better allocate funding to areas that support economic growth such as education, infrastructure, and active labor market policies. Promoting flexible work arrangements and encouraging young fathers to take up the new paid paternity leave would encourage more women to get jobs, including in areas where skills are in short supply.
Engaging more adults in higher-quality retraining programs can ensure that the workforce has the skills to make the most of the opportunities offered by the digital and green transitions.
Continued efforts to foster banks’ health, by clearing remaining non-performing loans and rebuilding their capital bases are needed to finance private investment and sustain economic growth.
Encouraging firms’ investment and growth are important for ensuring a stronger economy over the longer-term. With a special focus on achieving the transition to a net zero emission economy, the survey pointed out that greenhouse gas emissions remain significant in Greece. Replacing fossil fuels with renewable energy sources will require energy consumers to invest and adapt.
Transforming the energy system cost-effectively will be essential given the large investment needs of the transition to net zero.
The survey said that rising energy and food prices since the war in Ukraine are leading to a significant slowdown in growth, forecasting that this will drop to 1.1% in 2023 and 1.8% in 2024 from 5.1% in 2022.
Inflation (based on the harmonized index of consumer prices) is forecast to drop to 3.7% at average levels in 2023 and 2.3% in 2024 from 9.5% last year.
At the same time, it is estimated that the increase in employment will continue, at a rate of 1.1% this year against 6.2% in 2022.
Public debt is expected to fall to 170.7% of GDP this year and further to 163.6% in 2024 from 175.1% in 2022, thanks to growth and inflation, but remain high.
Exports of products and services are increasing and diversifying, reflecting the improvement in the competitiveness of the Greek economy, the survey noted.
Greece is among the EU countries that have made the most important progress in meeting the initial targets of the Growth and Resilience Plan and in absorbing resources from European funds, and the OECD stressed that if implemented well, it will significantly boost growth prospects and incomes.
The survey identified and discussed three key policies that could make substantial cuts to Greece’s greenhouse gas emissions – higher and more consistent prices for CO2 emissions, housing renovations, and making public transport more attractive.