BNP Paribas: New chapter for Greece

BNP Paribas “sees” growth of 1% for the Greek economy in 2023, with an acceleration to 2% for 2024. According to the analysts of the French bank, the country continues to show positive momentum, even if it is vulnerable to the deterioration of the economic situation in the rest of Europe. At the same time, BNP Paribas estimates that inflation will reach 10% this year before falling to 6% in 2023 and 2.4% in 2024.

Despite a significant increase in inflationary pressures, the Greek economy continued to grow rapidly in the first half of 2022, at a rate of 4.1%, BNP Paribas notes, with the unemployment rate falling in the third quarter of 2022 to its lowest levels since December 2009. Almost 80% of the rise in unemployment recorded during the financial crises of 2008 and 2011, which lasted from the fall of 2008 to the spring of 2013, has been reversed, analysts estimate. However, they emphasize that the Greek economy is mainly dependent on the rest of Europe for trade and energy supplies, making it particularly vulnerable to the deterioration of the economic situation on the continent.

Exit from supervision

As expected, on August 20, Greece exited the European Commission’s surveillance program, which the country had joined since 2018. Greece continues, however, like Spain, Ireland, Portugal and Cyprus, to be object of special attention by the Commission. Due to the European aid received during the sovereign debt crisis, the repayments of which some loans have to be spread over many more years, the Commission continues to closely assess the evolution of public finances and the sustainability of the country’s debt.

The country is turning a page

According to BNP Paribas, Greece’s exit from the enhanced supervision program means that the country is turning a page and showing the remarkable progress made in recent years especially on the fiscal front. The general government primary balance, which recorded a significant deficit in 2020 and 2021 due to the health crisis (the deficit amounted to 6.9% of GDP and 5.0% of GDP respectively), is expected to recover significantly in 2022, before likely to turn surplus in 2023. As a result, the public debt ratio should fall even more significantly this year than in 2021: the government aims for a reduction to around 170% of GDP, a significant improvement compared to the record recorded in 2020 (206.3%).

Strong performance

BNP notes that thanks to the strong performance of the economy and the Hercules programme, non-performing loans fell to 10% at the end of the second quarter of 2022, but warns that 2023 will be a difficult year as high inflation and rising interest rates may lead to greater payment difficulties for households and businesses.

The government can indeed count on a better-than-expected result from the increase in tax receipts and the reduction in social transfers to finance some of the inflationary assistance to households and businesses, without jeopardizing the fiscal path that has been put in the 2022 budget.

The year 2023, however, looks set to be more sensitive, with the combination of risks (high inflation, rising interest rates) further exacerbating payment difficulties for households and businesses.