In 2023, an election year, the Greek economy faces ten major challenges in a difficult environment.
Inflation is expected to remain high at least through the first quarter and the European Central Bank will announce a new interest rate hike in February, with a 6th consecutive raise in March remaining a distinct possibility. It may also be the case that most of the, now 20, Eurozone countries are going through a second consecutive quarter of recession.
1. The greatest challenge is to achieve real growth in 2023. It is expected to be slower than 2022 – 1.8% versus 5.6% – but, even achieving this would require growth in the gross domestic product’s major components, especially consumption and investments.
2. At a nominal level, GDP must rise by €14 billion in 2023. This means both real growth and average annual inflation slowing to 5%. The combination will bring Greece’s GDP to €224 billion. Nominal GDP is taken into account in determining the debt rte and, especially in 2023, it will be a very important factor in helping achieved the desired upgrade of the debt to investment grade fro the first time in 13 years.
3. Tourism revenue in 2022 helped offset GDP losses resulting from the spike in energy prices and the resulting widening trade deficit gap. επιδιωχθεί η ανάκτηση της επενδυτικής βαθμίδας. Tourism revenue must remain at the same levels, around €17 billion, or more than 95% of the last pre-pandemic year (2019), a task made more difficult by the recession hitting some of the main visitors’ countries of origin.
4. It will be hard to achieve a nominal GDP of €224 billion and real growth without a boost in private consumption. The task will be even more difficult now that, in the name of achieving fiscal targets, such as a primary budget surplus, public consumption will take a hit. The goal is to see private consumption rise 1%, but inflation and the resulting higher costs of borrowing make the challenge difficult. The income support measures included in the budget will help; but a decisive factor will be the conditions in, and the psychology of, domestic and international markets.
5. Making good use of the European Union’s Recovery and Resilience Fund, and the structiral funds, will determine private investment growth to a large extent. The goal set, 15.5% growth, is certainly ambitious. Also very important will be credit expansion by banks and real estate investment. Real estate has to face both higher interest rates and the spike in the prices of construction materials.
6. Inflation growth must slow down to about half the level of 2022 – 5% instead of nearly 10%. The so-called base effect will help, but there is also the uncertainty of how energy prices will evolve and how inflation expectations will consolidate and at what level.
7. Despite the slower economic growth, there should be a net growth in jobs. The target is to reduce the unemployment rate further, to 12.6%.
8. The transition from primary budget deficits to surpluses will require a fiscal adjustment of €5 billion. The lapsing of the many income support measures introduced in 2022 will help.
9. Despite the tax cuts (e.g. maintainig lower VAT rates for a series of services in the first half of 2023, the abolition of the so-called solidarity levy), tax revenue must increase by €1.7 billion to nearly €58 billion.
10. Meeting the previous challenges will help limit nominal debt growth to no more than €1-2 billion, to a total of €356-357 billion and even bring it under 160% of GDP. The main condition is to achieve the primary surplus and not repeat the pre-election period curse of derailing public spending in the quest for votes.