Economy will benefit from inflows of EU funds

Economy will benefit from inflows of EU funds

economy-will-benefit-from-inflows-of-eu-funds0Looking ahead for Greece, the Recovery and Resilience Facility and the Multiannual Financial Framework will be a main driver of growth. The economy will benefit from the inflows of European Union funds, given that the country achieves the milestones and investments that are included in the national plan (Greece 2.0).

Whether the funds will have a more longer-term positive impact on the economy will depend on the implementation of policies that address longstanding challenges of the Greek economy and factors that keep Greece lagging behind its euro area peers.

As the economy starts to grow that will bring down the debt ratio; however, we think that returning to a sustainable fiscal policy without constraining growth will further support debt reduction and keep the borrowing costs at healthy levels. Tourism is a big contributor to the Greek economy. That became even more obvious in 2020 with the negative effect that had on the economy.

In 2021 we saw a slow start but strong rebound in August and September. In the absence of new vaccine resistant mutations, the performance of the sector can be much stronger next year. There might be some structural factors to consider, such as the good performance of the regional airports managed by Fraport.

Greece has corrected the large macroeconomic imbalances (twin deficits) that led to the previous crisis. It went through a large fiscal consolidation, sometimes painful, but it managed to stabilize its fiscal finances and also implement reforms that improved competitiveness. Nonetheless, it became obvious from the Covid crisis that having a diversified and productive economy shields economies from external shocks.

Also, having a prudent fiscal policy ensures that the government can provide help to support the economy when needed, as we saw with the Covid-related aid packages but also with the wildfires last summer.

The ratings could be upgraded if one or a combination of the following occur: (1) continued implementation of reforms that boost investment, improving longer-term economic prospects; (2) continued commitment to fiscal consolidation that places the public debt ratio on a downward trajectory.

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