The Greek Parliamentary Budget Office (PBO) has released an optimistic forecast for the nation’s economy, projecting a 2.3% growth rate for the current year. The office emphasizes that expanding the manufacturing sector represents a crucial opportunity to establish a third robust economic pillar alongside tourism and shipping, though concerns remain about inflation reduction and the timing of interest rate adjustments.
Looking ahead to 2024 and 2025, the PBO maintains a positive outlook, expecting Greece to outpace average Eurozone growth rates, which should help narrow the per capita income gap between Greece and other European nations.
The economic landscape for 2025 appears promising, with several favorable factors converging. The European Central Bank (ECB) is expected to continue relaxing its tight monetary stance, while recent upgrades to Greece’s four major banks reflect significant improvements in the banking sector. Combined with the introduction of a fifth banking pillar, these developments should enhance businesses’ access to more affordable financing.
These improvements, along with the Finance Ministry’s upcoming legislation to incentivize business mergers and acquisitions, are creating conditions conducive to achieving economies of scale. This environment supports increased productivity – a crucial factor for sustained economic growth and price stability that ultimately benefits consumers.
The PBO’s current growth projection of 2.3% for 2024 falls within a range of 2.1% to 2.7%. This estimate aligns with recent forecasts from major institutions including the European Commission, International Monetary Fund, and Bank of Greece. The latest National Medium-Term Fiscal Structural Plan, submitted in late September 2024, projects a slightly more conservative 2.2% growth rate.
The manufacturing sector has shown particularly impressive progress, with its contribution to GDP reaching 10.4% in the second quarter of 2024, a marked improvement from 8.6% in the same period of 2009. Labor productivity in manufacturing has not only recovered but exceeded pre-crisis levels, driven by strong export orientation, significant Recovery and Resilience Facility investments, increased research and development spending, and improved work hour efficiency. The sector’s success has translated into higher wages, with manufacturing workers earning above-average salaries compared to the broader economy.
However, several challenges and uncertainties loom on the horizon, a main one being the upcoming U.S. elections and ongoing geopolitical tensions building global uncertainty, which, in turn, affects Greece’s economy. Monetary policy normalization has been slower than anticipated in some regions due to persistent inflation concerns, although the U.S. Federal Reserve recently reduced rates by 50 basis points. The ECB’s policy rate, after rising from 0.5% in July 2022 to 4.0% by September 2023, has been reduced to 3.5% as of September 2024 through two consecutive 25-basis-point cuts.
Persistent high inflation, particularly in the service sector, complicates monetary policy decisions, creating uncertainty about the pace of normalization, along with growing geopolitical and trade tensions that further cloud the inflation outlook. The approaching U.S. elections raise questions about potential trade and industrial policy shifts, while manufacturing sectors show concerning signs, especially in Germany despite generally favorable Eurozone labor market conditions.
The PBO highlights the recent Draghi report’s emphasis on improving EU competitiveness relative to the U.S. and China, calling for decisive action to strengthen cooperation frameworks and boost investments in innovation, defense, and energy independence among major EU economies.
