The recovery of the economy in Greece from the COVID-19 crisis was strong, supported by the continuation of reforms, the Organisation for Economic Co-operation and Development (OECD) said in an Economic Survey on Greece released on Tuesday.
It warned, however, that economic growth is likely to slow to just 1.1 percent this year from the 5.1 percent of 2022, as soaring energy costs and continued uncertainty about the war in Ukraine hurt spending and investment.
The survey was presented by OECD Secretary-General Mathias Cormann alongside Greek Primer Minister Kyriakos Mitsotakis in Athens.
It said continued policy reforms over recent years have been a key factor behind the country’s robust post-pandemic recovery and have put the economy in a stronger position to face current headwinds.
GDP has returned to pre-pandemic levels, helped by effective government support, a revival in tourism and exports, and improved investor and consumer confidence.
Employment growth has been strong, creating over a quarter of a million new jobs since before the start of the pandemic and reducing the unemployment rate to a twelve-year low of 11.6 percent.
To sustain recovery, the OECD survey recommends better allocation of public spending, strengthening public revenues, improving the functioning of the labor market, and keeping up efforts to create a more dynamic business sector.
‘Greece 2.0’ recovery plan lays strong foundations for Greece’s ability to tackle future challenges
“Greece’s robust and targeted policy response to the COVID-19 pandemic secured a strong and rapid recovery,” OECD Secretary-General Mathias Cormann said, presenting the Survey alongside Greek Prime Minister Kyriakos Mitsotakis. “The government’s ‘Greece 2.0’ recovery plan is already laying the strong foundations for Greece’s ability to tackle future challenges.”
“Ensuring the ambitious reform and investment agenda is fully implemented will help to further improve opportunities for businesses and households and will be essential for the Greek economy to navigate past the current headwinds towards a path of sustainable growth,” he said.
Structural reforms are the key to continued economic and social progress, the survey said, as high energy and other key commodity prices, especially since Russia’s war of aggression against Ukraine, are slowing Greece’s recovery.
Inflation peaked at 12.1 percent in October 2022—its highest rate in twenty-five years— which is weakening demand, delaying investment, and setting back recent gains in purchasing power for households. GDP growth is expected to moderate from 5.1 percent in 2022 to near 1 percent in 2023 and recover to approach 2 percent in 2024.
To buffer the inflation shock, the government has expanded energy and fuel price subsidies. This has, however, delayed the return of the primary budget surplus to its medium-term target of 1.5 percent to 2 percent of GDP, which weighs on Greece’s ability to access less expensive financing for investment.
While reducing high rates of poverty, the Greek economy still leaves many people behind, the survey said. The share of youth in work lags other OECD countries, despite recent improvements. Legal reforms are improving gender equality, but, in practice, and despite progress, relatively few women earn an income from work.
Greece benefits less than it could from the skills of its foreign-born workforce, even as employers across a growing number of sectors report increasing difficulties recruiting staff.
The government’s ‘Greece 2.0’ reform and investment plan for 2021 to 2026 aims to address many of the economic challenges facing the country through measures to improve the business climate, advance digitalization, support the green economy transition, and improve training and skills.
OECD sets out recommendations for Greece
The survey said that realizing the full potential of the plan will require a concerted effort to improve how the public sector operates and delivers, but, if well implemented, it will substantially increase growth prospects and incomes.
It also set out a number of recommendations to help sustain the recovery, raise incomes, and achieve the transition to a net zero emission economy.
- keeping debt-to-GDP ratios on a downward path by returning the primary budget balance to surplus from 2023 and better allocating funding to areas that support economic growth such as education, infrastructure, and active labor market policies
- promoting flexible work arrangements and encouraging young fathers to take up the new paid paternity leave, which would encourage more women to get jobs, including in areas where skills are in short supply
- engaging more adults in higher-quality retraining programs, which can ensure that the workforce has the skills to make the most of the opportunities offered by the digital and green transitions
- continued efforts to foster banks’ health by clearing remaining non-performing loans and rebuilding capital bases as needed to finance private investment and sustain economic growth
With a special focus on achieving the transition to a net zero emission economy, the survey pointed out that greenhouse gas emissions remain significant in Greece.
Replacing fossil fuels with renewable energy sources will require energy consumers to invest and adapt. Transforming the energy system cost-effectively will be essential given the large investment needs of the transition to net zero.
Rising energy and food prices lead to significant slowdown
The survey said that rising energy and food prices since the war in Ukraine are leading to a significant slowdown in growth, forecasting that this will drop to 1.1 percent in 2023 and 1.8 percent in 2024 from 5.1 percent in 2022.
Inflation—based on the harmonized index of consumer prices—is forecast to drop to 3.7 percent at average levels in 2023 and 2.3 percent in 2024 from 9.5 percent last year.
At the same time, it is estimated that the increase in employment will continue, at a rate of 1.1 percent this year against 6.2 percent in 2022.
Public debt is expected to fall to 170.7 percent of GDP this year and further to 163.6 percent in 2024 from 175.1 percent in 2022, thanks to growth and inflation, but will remain high.
Exports of products and services are increasing and diversifying, reflecting the improvement in the competitiveness of the Greek economy, the survey noted.
Greece is among the EU countries that have made the most important progress in meeting the initial targets of the Growth and Resilience Plan and in absorbing resources from European funds. The OECD stresses that if implemented well, these will significantly boost growth prospects and incomes.