The recovery of economic activity has already begun and is set to accelerate in the second half of the year, but the local economy continues to face significant challenges in both the short and long term, according to the Bank of Greece’s monetary policy report for 2020-21, released on Monday.
These challenges include the re-emergence of the twin deficit and the high public and private debt, as well as the end of the European Central Bank’s PEPP bond-buying program.
The BoG also stresses that the usage of the Next Generation EU resources needs to be rapid and efficient, while warning about the risks of sudden withdrawal of support measures and excessive fiscal easing.
The central bank insists that the economy will grow 4.2% this year, as it had also forecast in its previous report, with growth being particularly strong in the latter half; this will be the result of a rebound in domestic demand, the start of projects in the National Recovery and Resilience Plan, and the anticipated rise in tourism receipts compared to 2020.
The revised forecast of the BoG for the primary balance of the general government budget (as the enhanced surveillance method measures it) points to a deficit of about 7.1% of gross domestic product. In 2022 and 2023 the growth rate is projected to come to 5.3% and 3.9% respectively.
The report highlights that attaining high and sustainable growth rates – to support the reduction of the public debt-to-GDP ratio – requires the quick and effective utilization of European grants and loans in order to give the economy a growth boost by accelerating public and private investments. The BoG estimates that the “Greece 2.0” blueprint can add 6.9% to GDP per the baseline scenario and 8.5% per the optimistic version.
The downside risks for the economy are in the short term related to the course of the pandemic and the spread of variants, despite the progress of the inoculation process and the return to a path of growth.