The Greek economy is poised to stage an “explosive recovery” in the second half of the year, with growth at 7% and 5% in the second and third quarter respectively on a quarterly basis, leading up to an annual growth rate of 9.5% in 2022, according to a report by Piraeus Bank, one of Greece’s four biggest lenders.
The economic analysis and investment strategy report by Piraeus expects the economy to rebound by 4.5% in 2021 as a whole, after an estimated contraction of 9.5% in 2020.
The bank’s analysts explain that its projections show that instead of “scarring” and “hysteresis,” the terms economists use to describe the long-term impact of a negative factor such as Covid-19, Greece is entering “goldilocks status.”
Starting off with exceptionally low levels of activity – with excess production capacity overflowing, and taking into account the new tax cut policy, the high liquidity, the low cost of funding and the unprecedented levels of European Union resources to come – Greece is in a position not only to recover the lost gross domestic product of the last 10 months, but also to shift to a higher expansion rate compared to original forecasts before Covid-19.
After the outbreak of the pandemic and once original fears about a lasting impact were banished, there has been a chain of events that have convinced Piraeus Bank the economy may actually emerge stronger in the long run from this ordeal. These events have included the inclusion of Greek bonds in the European Central Bank’s emergency bond-buying program, the easing of fiscal discipline rules and the Next Generation EU program.
The report shifts the start of the recovery by one quarter from Q1 to Q2 of this year, but also projects that the impact of the European Union resources will come to 1.5 percentage points of GDP toward a long-term growth rate of 3.5%, instead of 2%.
Consequently the upward revision of the bank’s long-term projections transcends all short-term turbulence, says the report, concluding that original fears about the long-term consequences of the pandemic on the economy were excessive.