OECD Economic Outlook, Volume 2024 Issue 1

Greece

Growth will remain at 2.0% in 2024 before picking up to 2.5% in 2025. Rising employment and real wages will strengthen consumption. The disbursement of EU Recovery and Resilience funds will support investment despite tight financial conditions. Inflation will continue to fall, but at a slower pace, returning close to target by the end of 2025.

In light of high public debt, the projected decline of the budget deficit over the next two years is appropriate. However, spending needs are large, including due to low investment during the decade-long economic crisis, population ageing and the costs of addressing climate change. Boosting Greece’s low productivity would help create more fiscal space and raise living standards at the same time. This entails further progress in removing obstacles to invest, notably by strengthening the efficiency of the judicial system and improving regulations, and shifting public expenditures towards investment.

The economy remains resilient

Real GDP growth stalled during the second half of 2023 as floods in September 2023 temporarily disrupted transport links and affected especially agricultural production. Business expectations have improved and continue to point towards an expansion. Headline inflation has declined to 3.4% in March 2024, despite higher food prices. Employment growth has slowed, but the employment rate and labour shortages remain historically high. Annual wage growth picked up to 5.5% in the fourth quarter of 2023, with the minimum wage increasing by 9.4% in April 2023 and increasing again by 6.4% in April 2024.

Greece: Investment and fiscal indicators

1. Gross public debt, Maastricht definition.

Source: OECD Economic Outlook 115 database.

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Greece: Demand, output and prices

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Borrowing costs for businesses have increased due to higher market interest rates. New business lending slowed in January 2024 but remained high compared to pre-pandemic levels. However, borrowing costs for the government have decreased due to lower risk premia, as Greek government bonds have regained investment grade. Interest rates on 10-year government bonds fell by 100 basis points and spreads to German bonds halved in the year to March 2024. Energy prices declined by 18% in the year to March 2024, although food prices continued to increase by 9.7%. Tourism has grown strongly, with travel receipts rising by 41.5% over the year to December 2023, mostly reflecting higher traveller inflows.

The debt-to-GDP ratio will continue to decline

The primary surplus stood at 1.2% of GDP for 2023 and is projected to reach 1.8% in 2024 and 2.1% in 2025. A growing economy and further progress in combatting tax evasion will bolster revenues. Emergency energy measures, which amounted to 1% of GDP in 2023, are planned to be phased out in 2024. Additional spending measures for 2024 amounting to 0.4% of GDP include a public sector wage reform, discounts for taxpayers with children, and increases in the minimum guaranteed income. Government expenditure financed by the EU Recovery and Resilience Funds, amounting to 1.7% of GDP in 2024 and 2.3% of GDP in 2025, will support real investment growth of about 9% by 2025 if undertaken effectively. Public debt is expected to fall from 161% of GDP in 2023 to 151% by 2025.

Growth will pick up

Growth is projected to continue at 2.0% in 2024 before picking up to 2.5% in 2025. Consumption growth will pick up in 2024 as real wage increases, employment gains, and strong tourism inflows support incomes and spending. Continuous improvements in bank health and the disbursement of Recovery and Resilience Funds will support investment growth. Inflationary pressures from growing wages will continue into early 2025, but headline and core inflation are projected to decline gradually, reaching 2.1% year‑on‑year in last quarter of 2025. Delays in disbursing Recovery and Resilience Funds could weaken investment, while weaker euro area growth would lower tourism demand. Excessively high wage growth – exceeding productivity gains – would undermine previous competitiveness gains, denting export prospects.

Boosting productivity and fiscal consolidation are key challenges

Fiscal consolidation remains a priority as the high debt level exposes Greece to market risks. Sustained strong economic growth will be required to achieve debt reductions in the face of high spending needs. Productivity remains one third below the OECD average. Making the judicial system more efficient, reducing remaining regulatory burdens in retail and professional services, and providing more and better‑quality training to adults could boost productivity-enhancing private investment. A large part of the public investment needed to support growth will have to be financed from the budget after the Recovery and Resilience Funds end in 2026, notably by containing the wage bill, reducing the fragmentation of public procurement, pursuing further digitalisation and simplification of public services and broadening the number of taxpayers.