Despite strong growth, declining inflation and unemployment, Greece should remain committed to continued reforms and prudent fiscal policy to maintain its growth trajectory. This is the message of the European Stability Mechanism (ESM) for Greece in its annual report for 2023.
In 2024 the Greek economy is expected to run at a rate higher than the eurozone average, at 2.3%, while inflation will continue to decrease but will remain at high levels, at 2.7%.
Long-term challenges
Regarding the challenges for the Greek economy, it is noted that in the short term no high risks are recorded. “In the long term, however, Greece faces challenges in terms of debt sustainability and its ability to repay. This is due to its high public and external debts, the external deficit, weak productivity and the vulnerabilities of the banking system”.
As for banks, it is estimated that they may face higher funding costs and lower profitability.
To mitigate these challenges, Greece should remain firmly committed to fiscal prudence and reforms, focusing on its recovery and the Recovery Fund.
Special mention was made of the recovery of the investment grade by all rating agencies with the exception of one, Moody’s.
“Greece reached an important milestone when all but one major rating agency gave Greek bonds investment grade rating during the year, after a long period of public debt crisis…. The public debt-to-GDP ratio fell by about 11 percentage points, recording a double-digit decline for the third year in a row. Financial markets responded to these positive developments, narrowing the spread to levels approaching those of higher-rated eurozone sovereigns. The structure of the Greek debt, with the largest percentage held by official creditors, with long-term maturities at fixed interest rates, provided protection against the increase in the cost of financing, while cash reserves remained at a high level.”
