Caution Amid Optimism: Bank of Greece Sees 2.1% Growth but Flags Key Risks

The Bank of Greece’s mid-year Monetary Policy Report for 2025 paints a picture of an economy growing faster than the eurozone average, despite a highly unstable international environment. Yet beneath the positive headline figures, the central bank identifies clear “red zones” that could slow momentum in the coming years.

Growth Above Eurozone Average

According to the Bank’s projections:

• GDP growth is expected at 2.1% for 2025 and 2026, compared with roughly 1% in the eurozone.
• A mild slowdown to around 2.0% in 2027–2028 is anticipated, as the stimulus from NextGenerationEU funds wanes.

The drivers of growth include:

• Private consumption, supported by rising real incomes.
• Investments, boosted by the Recovery and Resilience Facility (RRF), although only about one-third of these funds have reached the real economy, posing potential delays.
• Exports of services, mainly tourism and transport.

Fiscal Strength and Rapid Debt Reduction

The fiscal outlook is strong:

• Primary surplus at 3.7% of GDP in 2025
• Public debt at 145.3% of GDP in 2025, projected to fall to 138.2% in 2026

The Bank attributes this improvement to:

• Overperformance of tax revenues
• Better tax compliance
• Broadened tax base

For the first time in years, Greece’s debt is no longer an outlier in the eurozone.

Inflation: Persistent Threat

Despite robust growth, inflation remains a structural concern:

• 2.8% in 2025, easing to 2.1% in 2026
• Temporary rise to 2.5% in 2028 due to carbon emission rights

The Bank notes:

• Service inflation remains high
• Wage increases average 4% per year, outpacing productivity
• Rising rents and tourism demand contribute to price pressures

These trends limit monetary policy flexibility and erode household purchasing power.

Labor Market: Falling Unemployment, Rising Tightness

• Unemployment projected at 9.2% in 2025, declining to 8.0% by 2028
• Strong labor shortages in tourism, construction, and manufacturing
• Risk of competitiveness losses due to wage pressures not matched by productivity gains

External Sector: Structural Challenges

The current account balance shows gradual improvement but remains structurally constrained due to:

• High import content of growth
• Limited net contribution of external trade to GDP

Red Zones for 2025

The Bank of Greece highlights key risks:

• Geopolitical instability (Russia–Ukraine, Middle East)
• Trade protectionism and geopolitical fragmentation
• Climate change and natural disasters
• Delays in reforms and RRF fund absorption
• Interest rate risk as public debt gradually shifts to market terms

Greece enters 2025 with solid growth, strong fiscal surpluses, and falling debt. However, as the Bank warns, resilience does not equal immunity. These “red zones” require speed in reforms, fiscal discipline, and strategic choices to prevent external shocks from triggering domestic economic strain.

Source: pagenews.gr