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Central Bank of Greece Slashes Growth Projection to 3.8% This Year

Bank of Greece
The war in Ukraine has led to a cut in the projection for growth in Greece. Credit: Greek Reporter

The central bank of Greece cut its projection for growth in 2022 to 3.8% from a previous projection of 4.8% it announced on Thursday.

The head of the central bank, Yannis Stournaras, told the bank’s annual meeting of shareholders that “the war in Ukraine is a new, major exogenous supply-side shock to the global economy.”

He said this was occurring at a very “critical time” when economies were rebounding from the health crisis and a severe recession.

Regaining investment grade is of paramount importance for growth

Stournaras said Greece’s main economic policy objectives this year should be to maintain growth momentum and keep up efforts to regain investment grade. “The latter should become a national goal,” he said.

Regaining an investment grade is a key task for Greece, and it was part of the reason that the country repaid its bailout-era debts to the International Monetary Fund (IMF) some two years early on Monday.

Under the central bank’s adverse scenario, economic growth is seen limited to 2.8%.

The economy’s performance will depend on the extent and duration of the shocks in international prices of energy and food, as well as deterioration in confidence and financial market turmoil, Stournaras said.

Under the central bank’s baseline scenario, consumer inflation is projected at 5.2% this year while a further increase to 7.0% is projected under an adverse scenario.

According to preliminary data released last week by Eurostat, the statistical office of the European Union, the inflation rate in Greece was 7.2 percent in February compared to 6.2 percent in January.

“Although the main drivers of growth this year are domestic demand and tourism, there is significant uncertainty: the negative impact of inflation on households’ real disposable income will drag down private consumption,” Stournaras said.

The cancellation of investments will affect growth in Greece

“Increased production costs and lower consumption will negatively affect business profitability and, together with general uncertainty, may lead to postponement or cancellation of investment decisions,” he warned.

He added that there is also uncertainty about tourist inflows, mainly from Europe and the US, due to the declining purchasing power of households in the countries of origin but also due to a sense of insecurity.

On a positive note, Stournaras said that Greece is capable of turning the current energy crisis into a historic opportunity and become an energy hub in southeast Europe.

“Based on its know-how in submarine power projects and also, by accelerating investments in renewable energy sources, it can enhance its energy security, accelerate energy transition and be a factor of energy stability in the EU,” the Head of the Greek central bank noted.

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