Capital Economics: Greek economy resilient; GDP growth of 6.5% forecast for 2022

After a predicted GDP growth rate of 6.5 percent in 2022, the Greek economy will significantly slow down in 2023, with Capital Economics forecasting zero growth next year, as both external and domestic demand will shrink.

However, Capital Economics foresees that the downturn in Greece will be less painful, compared to the rest of the Eurozone, where a recession of 1.8 percent is forecast for the entire Eurozone in 2023.

Moreover, the London-based economic research firm described the Greek economy as resilient, following what it called an impressive recovery from the pandemic, with Greek GDP rising to levels of 5 percent, when compared to the pre-pandemic period. Although the recovery is much stronger than the Eurozone average, the Greek economy still remains below where it stood before the 2008 global financial crisis and the subsequent decade-long Greek debt and economic crisis. As expected, tourism revenues in 2022 will more-or-less reach pre-pandemic levels. However, in 2023 they are expected to decrease as a result of recession in other European economies, reminiscent of the 2007-2010 period, when tourism remittances in the east Mediterranean country decreased by 17 percent due to recession in the rest of Europe.

Overall, as Capital Economics forecasts, Greece will be affected by a recession in the coming months, as shown by a recent decline in the manufacturing PMI index. Nevertheless, the country’s public finances appear sustainable, even though Greece has the highest debt-to-GDP ratio in the Eurozone, as interest costs are low and the average maturity period is quite high.

In addition, the ECB is expected to continue to support Greek bonds.

Beyond 2023, in 2024, Greek GDP is expected to rise by a modest 1.8 percent, although predicted as among the “strongest” for a recovering Eurozone. Average inflation in the euro zone, from 8.3 percent this year, will drop to 5.5 percent in 2023 and 2.5 percent in 2024, while in Greece it is forecast to reach 9.8 percent, 4.5 percent and 1 percent, respectively.