ATHENS – The Greek economy is expected to grow by 3.5% this year despite the war in Ukraine, the International Monetary Fund (IMF) said its staff concluding statement of the 2022 Article IV consultation mission released on Friday.
In its report, the IMF said that the Greek economy recovered strongly from the severe COVID-19-induced recession in 2020. Output returned to its pre-pandemic level in 2021, reflecting a faster-than-expected tourism recovery, rising private consumption as households started to unwind pandemic-related savings, and robust private investment supported by surging foreign direct investment. The strong fiscal response, accommodative monetary policy and prudential policies, and sizable EU support have been key to fostering the recovery.
Commendable progress has been achieved in addressing crisis legacies, despite the challenging environment. The authorities are finalizing the early payment of all outstanding IMF credit (1.8 billion euros), which will further reduce gross financing needs and rollover risks.
Growth is expected to remain robust despite the adverse impact of the war in Ukraine and high inflation. These factors are expected to reduce growth this year by a full percentage point to 3.5 percent. Stronger and more persistent energy price growth is expected to push up average inflation to 4.5 percent in 2022, before it settles at 1.9 percent over the medium term.
Uncertainties and downside risks continue to cloud the outlook. Public debt is expected to decline and rollover risks appear manageable over the medium term. Though the overall risk of sovereign stress is moderate, considerable uncertainty remains about Greece’s ability to sustain high primary surpluses and the future path of interest rates once Greece starts to replace official financing with market funding.
The mission recommended maintaining an accommodative fiscal stance in 2022 and reaching a primary surplus in 2023. The fiscal adjustment should be gradual and growth friendly. The mission recommended a gradual consolidation path to achieve a primary surplus of 2 percent of GDP by 2027, underpinned by credible measures. Plans for permanent cuts in social security contributions and in the solidarity tax for all taxpayers should be reversed, as they shift the burden to future generations and are poorly targeted, or at least fully funded through benefit adjustments respectively base‑broadening measures.
The mission welcomed improvements in the fiscal mix achieved during the pandemic, notably higher health care spending and public investment, and emphasized that these gains should not be sacrificed to achieve consolidation targets. Instead, spending pressures on pensions and civil service wages should be contained, including by respecting the pension freeze this year and the indexation formula from next year onwards. There remains ample scope to improve the fiscal policy mix further by phasing out transfers to public enterprises and fuel subsidies over the medium term and tackling tax evasion by the self-employed to make room for critical social spending and recurrent investment needs once NGEU funding ends. Accelerating fiscal structural reforms would facilitate these efforts.
The mission welcomed the rapid clean-up of the balance sheets of major banks, but challenges remain. The authorities should closely monitor risks stemming from new NPL inflows once policy measures are fully withdrawn, ensure adequate credit classification and provisioning, and supervise risks arising from credit servicers active in the distressed debt market.
More efforts are needed to rebuild banking sector resilience. Capital used to absorb losses from NPL securitizations needs to be replenished to ensure adequate buffers to mitigate future shocks. In the short term, this may require share capital increases and stronger structural capital buffers.
Past structural reforms have helped Greece weather the COVID-19 crisis and facilitated a job-rich recovery. Resilient goods exports have cushioned the hard‑hit tourism sector, and Greece’s external position recovered in 2021, but remained moderately weaker than a level consistent with medium-term fundamentals and desirable policies. The mission encouraged the authorities to pursue a prudent minimum wage increase that preserves competitiveness gains. The mission called on the authorities to protect the independence and credibility of the statistical agency and its staff, making every effort to uphold the “Commitment on Confidence in Statistics” endorsed by the government in 2012.
The mission commended Greece’s commitment to climate-friendly policies, which requires strengthening social protection to facilitate the green transition.