Bank of Greece to trim growth outlook for 2024

The Greek central bank is set to trim its growth outlook for next year significantly in its upcoming December forecasts.

Central bank governor Yannis Stournaras told POLITICO that his institution now expects the Greek economy to expand 2.4 percent this year, and by 2.5 percent in each of the two subsequent years. At the latest official forecast released in June, the central bank forecast 2.2 percent growth for this year, 3.0 percent for 2024 and 2.7 percent for 2025.

The numbers represent a significant slowdown after a robust recovery from the pandemic. GDP in the region’s former trouble spot expanded by 8.4 per cent in 2021 and 5.6 percent last year, thanks largely to pent-up tourism demand. But even after shifting down a gear, it’s still set to grow faster than most of its eurozone peers. That growth is ensuring that a rapid decline in Greece’s debt-to-GDP ratio continues. Having peaked at well over 200 percent, it currently stands at around 165 percent and will fall to 144.7 percent by 2025, the bank estimates.

The Bank of Greece is due to release official forecasts in its regular interim monetary policy report in December. The updated projections also show a lower trajectory for inflation. The preliminary estimate for 2023 remains at 4.3 percent, but inflation is now seen falling to 3.5 percent in 2024 and 2.2 percent in 2025, compared to previous forecasts of 3.8 and 2.3 respectively. The preliminary estimates of the central bank are slightly more pessimistic than those of the Greek government.

The European Central Bank (ECB) is unlikely to start cutting interest rates before mid-2024, Stournaras said, pushing back against market bets for a first cut as early as April. “The current numbers betting on April seem a bit optimistic,” the Greek central bank chief said in his interview to Politico. Instead, he sees the first rate cut “in the middle of next year” if inflation then is slightly below 3 percent and points to sustained decline to 2 percent.

Stournaras argued that the ECB president appears to share his view on the timeline for a first rate cut. “She said we cannot reduce interest rates in the next two quarters,” he said, referring to Christine Lagarde’s recent impromptu return to ‘forward guidance.’ This “means in the beginning of the third quarter of next year, we might,” he concluded. “That’s how I read it.”