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IMF’s Key Findings and Recommendations for Greece

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The International Monetary Fund announced that the Greek economy is expected to expand by 2.5% this year. Credit: Simon D. McCourtie, CC BY-NC-ND 2.0

Greece’s economy is expected to expand by 2.5% this year due to strong domestic demand, investments and EU funds, the International Monetary Fund (IMF) said on Tuesday.

Growth will slow down to 2.0% next year, the fund said in staff concluding statement.

Key findings of the IMF report on Greece

The IMF says that Greece’s economic outlook has improved notably with real GDP expanding beyond its pre-pandemic trend level.

The public debt-to-GDP ratio has declined below its pre-pandemic level with debt financing risks contained in the medium term due to the favorable debt structure. The banking system has remained resilient with improving balance sheets.

However, the IMF warns, that the economy is facing macro-financial challenges amid the significant monetary policy tightening, persistent core inflation, and rising real estate prices.

It notes that with the expiration of the National Recovery and Resilience Plan (NGEU) funding in 2026, and still low potential growth, GDP growth is forecast to moderate to about 1¼ percent in the medium term.

Headline inflation is projected to reach 2 percent by end-2025 as pressures on core inflation will dissipate only gradually despite continued normalization of food and fuel prices.

With still very high debt, continued fiscal consolidation with the primary surplus increasing to 2.1 percent of GDP in 2024, up from projected 1.1 percent in 2023, would help further reduce the public debt-to-GDP ratio, while limiting additional pressure on inflation.

Amid strong revenue growth, maintaining a primary surplus of about 2 percent of GDP in the medium term would further improve public debt sustainability, while providing additional space for domestically financed public investment and critical social spending.

This would contribute to narrowing Greece’s large investment gap while keeping the public debt-to-GDP ratio firmly on a declining path.

The IMF warns that spending pressures should be resisted in non-discretionary areas such as public sector wages and pensions, which are still at elevated levels in cross-country comparison.

In contrast, it says, investment needs are large, including for green and digital transition. Critical social spending such as targeted social transfers, healthcare, and education should be protected or expanded for more inclusive growth.

IMF recommendations for Greece

The IMF recommends that Greece should accelerate regulatory reforms to support business. Regulations should be rationalized to facilitate firm entry and exit as well as job transitions in all sectors, which will help improve business dynamism and productivity.

It also recommends higher labor participation and a better skilled workforce. Scaling up the lifelong learning system, including on digital and green skills, could reduce skill shortages and help address the bottlenecks for youth and women employment.

Finally, it calls on Greece to strengthen judicial system reforms and out-of-court proceedings. Further progress to accelerate debt resolution through restructurings under the out-of-court workout platform and through the formal proceedings under the new insolvency code would contribute to improving business dynamism.

It will help increase financial sector resilience as well by further reducing bank NPLs and distressed debt recovered by credit servicers, the IMF says.

Related: Shadow Economy in Greece at 20.9 Percent of GDP, Central Banker Says

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