BoG: Growth rate to pick up in 2024-2025

The Bank of Greece forecasts slightly accelerated growth rates in 2024-2025, in its “Note on the Greek Economy” report, published on Monday. It forecast an increase in the country’s gross domestic product by 2.2% from 2% in 2023, while in 2025 the rate is expected to increase to 2.5% of GDP before easing back to 2.3% in 2026.

According to BoG estimates, the full execution of the EU Recovery Plan will contribute to a significant increase of 7% in real GDP by 2026, primarily due to the increase in total investment and total factor productivity. At the same time, it will contribute to the increase of employment, private investment, exports and tax revenue.

The implementation of reforms associated with the NextGenerationEU (NGEU) is projected to bring about a permanent increase of real GDP and total factor productivity (in the course of 10 years)

Looking ahead, according to the BoG projections, growth is expected to accelerate marginally in 2024 and 2025 mainly driven by investment, supported by available European resources, and private consumption.

Inflation is expected to further decelerate to 3% in 2024 on the back of further declines in the inflation rates of food, non-energy industrial goods and services.

The fiscal position in 2024 is expected to be slightly expansionary, on the back of increased investment expenditure financed by the RRF.

The central bank sees a deterioration in the geopolitical crisis in Ukraine and in the Middle East as a potential major downside risk to the growth outlook, as it raises uncertainty and is likely to place upward pressure on energy prices.

As regards debt sustainability, it sees the projected effect of the pandemic, the energy crisis and the related fiscal expansion as a medium-term upward shift in the trajectories of debt-to-GDP and, to a smaller extent, gross financing needs (GFN)-to-GDP.

Under baseline assumptions for a timely withdrawal of the expansionary fiscal measures taken in the context of the pandemic and the energy crisis, and assuming the effective use of NGEU funds, the debt and GFN trajectories are projected to recover broadly in line with the pre-Covid outlook in the long run, the Bank of Greece said.

Despite higher market and policy rates, it added, risks to debt sustainability remain contained in the medium term.