Greece’s economic outlook has improved notably, says IMF report

Greece’s economic outlook has improved notably with real GDP expanding beyond its pre-pandemic trend level, the International Monetary Fund said in its staff concluding statement of the 2023 Article IV consultation mission in Athens.

The IMF said that 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 economy is facing macro-financial challenges amid the significant monetary policy tightening, persistent core inflation, and rising real estate prices. Structural imbalances arising from low household savings and still low level of investment as well as a structural shift from climate change are weighing on medium-term growth prospects.

Achieving higher and greener growth and ensuring fiscal sustainability while safeguarding financial stability requires the right policy mix aimed at continuingfiscal consolidationin a growth-friendly manner, strengthening financial system resilience, and accelerating pro-growth reforms.

More specifically, the IMF said that real GDP continued to expand at a solid pace in the first half of 2023 by 2 1/2 percent (seasonally adjusted annualized rate). Private consumption was buoyant on the back of increasing real wages and a gradual decline in pandemic-induced excess household savings. Fixed investment growth remained robust driven by the ongoing Next Generation EU (NGEU)-funded investment.

High frequency data suggests that overall economic momentum remained robust in the third quarter despite a series of natural disasters (heatwaves, wildfires, and floods). The unemployment rate declined to 10 percent in September, a decade low.

Headline and core inflation decelerated to 3.8 and 3.6 percent (y/y), respectively, in October due to normalizing energy prices and base effects, but remain high amid the tightening labor market. Residential real estate prices have increased by more than 50 percent since the trough in 2017 but still remain below their pre-Global Financial Crisis levels.

-Much-needed continued progress in structural reforms has improved investment and productivity growth.

-The banking system has remained resilient underpinned by policy support and balance sheet strengthening.

-Real GDP is projected to grow robustly by 2.5 and 2.0 percent in 2023 and 2024, respectively, before moderating toward the medium term.

-Risks are more balanced for growth but tilted upward for inflation.

-Growth-friendly fiscal consolidation can further strengthen public debt sustainability while supporting inclusive and green growth.

-Containing spending pressures is critical to maintain fiscal space for crucial social and capital expenditure.

-Advancing fiscal structural reforms would enhance fiscal governance and improve the efficiency of fiscal policy.

-The monitoring and management of risks associated with interest rate, liquidity and funding, and credit exposures should be strengthened, underpinned by a strong bank capital base.

-The macroprudential policy toolkit should befurtherstrengthened and more actively used to enhance resilience of the banking sector.

-Comprehensive reforms to address structural supply impediments would lift medium-term growth prospects while alleviating inflationary pressure.

-Concerted efforts are needed to achieve the authorities’ ambitious climate goals and green transition.