Greece is anticipated to maintain better economic performance compared to the broader Eurozone for the next two years, with a reduction in public debt, according to the 2024 outlook by Capital Economics.
While the Eurozone is expected to hover around recessionary territory in the first half of 2024, Greece’s economy experienced a slight contraction in the third quarter of 2023. However, its GDP remains 6% higher than pre-pandemic levels, Capital Economics says. Business surveys indicate resilience above long-term averages, aligning with a return to economic expansion in the fourth quarter.
Household consumption was bolstered due to increased employment, rising by 1.7% annually in the quarter ending in September, pushing unemployment down to 10%, a substantial improvement from 17% at the end of 2019.
Structural enhancements in the economy, including a notable decrease in non-performing loans, have buttressed growth, while the country’s private sector is less exposed to rising interest rates compared to most European countries.
Greece’s public debt burden is high by international standards, however, steady economic growth, budget surpluses, and low interest costs from the previous debt restructuring have placed the debt-to-GDP ratio on a downward trend. The government’s deficit recorded a slight downtick in 2023, aided by robust economic growth and expenditure control.
Furthermore, an upgrade in its credit rating indicates Greece will automatically meet the conditions for inclusion in the ECB’s asset purchase programs. In contrast, the Eurozone is forecasted by Capital Economics to remain in or near recession in the first half of 2024, with the impacts of higher interest rates continuing to weigh on household consumption and investments.
Structural inflation has already sharply receded, approaching the ECB’s 2% target for most of 2024. Although the labor market remains strong, vacancy levels are decreasing from recent highs, assisting in maintaining structural inflation on a downward trajectory.
Lastly, Capital Economics predicts that the ECB will initiate a policy easing cycle around April of next year, reducing the deposit rate from the current 4% to approximately 2.25% by the end of 2025.