OECD revises upward forecasts for Greece’s economic outlook
Greece’s economy is expected to grow 3.8% in 2021 and 5.0% in 2022, the Organization for Economic Co-operation and Development OECD said on Monday in its economic outlook report.
The Paris-based organization said easing travel restrictions should support service activity and exports. The importance of tourism makes Greece’s prospects particularly dependent on the success of vaccination campaigns worldwide. Increased disbursements from the large EU-funded recovery and resilience plan will support investment in 2021 and 2022, if recent reforms succeed in encouraging faster and better public capital spending and businesses productively use the financing facilities of the plan. As containment measures are lifted and activity gradually resumes, income support can be refocused to encourage beneficiaries to enroll in quality vocational training and retraining programs. Support policies have encouraged banks to restart lending to businesses, but bankruptcies and NPLs are likely to increase with the withdrawal of support, underscoring the urgency of improving the quality of banks’ assets. Increasing the efficiency of public administration would help improve the investment climate and the implementation of recent reforms.
Greece has extended strict containment measures to control third wave of infections
More contagious variants of COVID-19 have brought Greece a third wave of infections. From November, many educational institutions and consumer service sectors were closed, teleworking was encouraged and the mobility of the population was restricted. However, by early April, recorded infection rates and the number of intensive care patients had surpassed the highs of previous waves. As the number of cases stabilized and a large part of the vulnerable population was vaccinated, Greece began to gradually reopen from the end of April, first educational institutions and then numerous service and tourism facilities. Greece’s overall immunization rate is close to the EU average and it has provided at least 85% of all its vaccine doses to priority groups of healthcare workers and those over the age of 60.
Containment measures reduced activity, but less than in 2020
Containment restrictions introduced in November have all but shut down tourism and drastically curtailed the activities of many other consumer services. However, the losses were less than in the previous lockdown. Revenue in February 2021 was around 50% lower than a year earlier in the sectors required to close. Manufacturing, including of medical and pharmaceutical products, was more robust in late 2020 and the first months of 2021. Banks increased new business loans, backed by government loan guarantees and subsidy subsidies. ‘interests. Households continued to increase their savings thanks to the latest foreclosure – excess bank deposits grew by more than 7% of GDP in 2020. Housing construction rose sharply. Overall, companies hired workers in the first months of 2021, even as they suspended contracts for 260,000 workers.
The government extended its support and announced a substantial stimulus package
The government has doubled its planned support for the economy for 2021, to 14.3 billion euros (8.3% of 2021 GDP). The latest support measures extend existing programs, such as income support for the self-employed, workers on leave and the unemployed, and reduced tax and social charges for businesses. The government has also put in place a new guarantee scheme and a 2021 small business loan subsidy program. The moratoriums apply to servicing 12% of all outstanding business and household loans, one-third of which is assessed as being in a high credit risk category. The government will provide grants and low-cost loans to help businesses rebuild inventory and working capital. Greece’s recovery and resilience plan foresees four billion euros (2.3% of GDP) in grants and loans in 2021, and 5.3 billion euros each year from 2022, to support digital and green investments, strengthen skills and jobs, stimulate private investment and transform economic and public institutions.
A recovery in tourism and the recovery plan will lead to the recovery
The recovery of the economy is expected to accelerate in 2022 with the resumption of services and travel and the disbursements of investments to support Greece’s recovery and resilience plan. Exports are expected to gradually recover from the second quarter of 2021, driven by tourists from countries with high vaccination rates. Tourism receipts in 2021 are expected to recover nearly half of the decline in 2020. Strong global merchandise trade is expected to support Greece’s shipping services and merchandise exports. These developments will boost employment and household incomes, which, together with a modest reduction in savings accumulated during the crisis, will support a recovery in consumption. The economic slowdown will ease price pressures, while ongoing reforms are likely to add flexibility to the labor market. The recovery would be delayed more than in most countries if vaccination campaigns are less effective than expected in enabling travel and tourism to resume. If recent reforms contribute less than expected to improving Greece’s public investment spending, the strengthening of domestic activity, employment and long-term prospects would be less than expected.
Upgrading skills and improving the investment climate would strengthen the recovery
Since the recovery in employment-intensive services is likely to be gradual, refocusing income support measures on active labor market programs and training would help prevent poverty or long-term unemployment from growing. The likely damage to public finances and the quality of bank assets due to the increase in bankruptcies heightens the urgency to take new measures to combat bad loans and deferred tax credits of banks. This will require actions in addition to the recent extension of the “Hercules” asset protection scheme. Greece’s recovery and resilience plan includes many measures that can boost productivity and longer-term environmental sustainability, and will require rapid and sustained implementation.
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