Low productivity and a large investment gap remain major “thorns” for the Greek economy, according to a report published today by the OECD. At the same time, low innovation and the slow adoption of technologies by businesses continue to limit Greece’s growth potential.
According to the report, the Greek economy has held up well during recent crises and has outpaced the eurozone in growth rates in recent years. The per capita GDP gap relative to the more advanced OECD economies has begun to narrow, as increased capital intensity, job creation, and structural reforms have supported a steady recovery from the prolonged crisis. However, progress has been constrained by weak productivity gains, while the investment gap, though narrowing, remains large, and many businesses, especially smaller ones, continue to struggle with adopting digital technologies and innovating.
The OECD report notes that in order to raise incomes, competitiveness must be ensured and large spending needs must be met, while at the same time further debt reduction is needed, productivity must be boosted, and the improved conditions in the labour market must be maintained. It also notes that if small and medium-sized enterprises had better access to financing, they would innovate more and invest in more advanced technologies.
Furthermore, the OECD highlights skills shortages in the Greek labour market, recommends improvements in education and increased participation of women, and notes that removing remaining regulatory burdens would strengthen competition and business dynamism.
Non-Performing Loans
The banking sector is the main source of external financing. Although the health of the banking sector has improved significantly, the decade-long economic crisis left its mark on the financial system. The non-performing loan (NPL) ratio on banks’ balance sheets remains relatively high, despite the significant reduction achieved through the “Hercules” programmes. The servicers, to whom the risks have been transferred, face obstacles in resolving NPLs due to the cumbersome liquidation of collateral and delays in legal proceedings, while debtors of unresolved NPLs remain effectively excluded from the banking system. A judicial reform in 2024 aims to speed up insolvency cases.
Digital Technologies
The persistent productivity gap is accompanied by the slow diffusion of digital technologies. The use of digital tools, from creating a corporate website to using cloud computing and artificial intelligence, lags behind other OECD countries, particularly among smaller businesses. The rapid but still limited rollout of high-speed broadband infrastructure, the lack of managerial capabilities, and limited access to innovative forms of financing are the main obstacles to reaping the benefits of digitisation.
Skills Shortage
The skills shortage is significant and growing, hindering both business development and innovation. Although unemployment is on a downward trend, it remains high compared to other OECD countries. Unemployment and skills shortages coexist, as the skills mismatch is large. Adult skills lag behind those in other OECD countries, and participation in training is low. Targeted training for the unemployed through the Public Employment Service (DYPA) has improved, but limited funding for active labour market policies hampers further progress.
Women’s Unemployment
The employment gap between men and women remains large, and the female labour force participation rate, while improving, is still among the lowest in the OECD. Achieving a better work-life balance would facilitate women’s access to the labour market, thereby increasing the skills supply. However, childcare capacity is low, as spending is directed towards birth allowances rather than in-kind support.
Heavy Regulatory Burden
Low business dynamism is accompanied by the perception that the regulatory burden is high. Business entry and exit rates are low, as the economy is dominated by small firms that often exhibit low productivity and fail to grow. Although the regulatory framework has become more broadly conducive to competition, there is still room for improvement, particularly regarding the quality of regulation and professional services that provide significant intermediary solutions for businesses.
