Eurobank: Tourism is recovering, employment is resilient and credibility is boosted

The recent publications of indicators for the course of the Greek economy (current account balance April 2022, unemployment and employment rate April 2022, per capita GDP 2021) and the announcement of the Eurogroup on June 16, 2022 according to which enhanced supervision will not be extended beyond scheduled to expire on August 20, 2022, send important messages about the short-term prospects and medium-term challenges of the Greek economy. In short, the recovery of tourism stimulates demand in the economy and employment is resilient to the energy crisis. The last result is also related to the support measures (unemployment rate at 12.5%). However, as in 2021, the projected recovery in 2022 is accompanied by a high external deficit (domestic expenditure> domestic production). The end of enhanced supervision adds points to the credibility of the Greek economy and is a factor in curbing the cost of financing the external deficit in an environment of sharp fluctuations in the international capital markets. The next step is to recover the investment. Further strengthening of credibility is an important condition for the Greek economy to enter a multi-year growth path in order to cover to some extent the distance that separates it from the EU-27 per capita GDP.

Following the positive results of the national accounts for the first quarter of 2022, tourism is recovering dynamically, supporting demand and domestic production. According to BoG data, travel receipts in April 2022 amounted to € 647.0 million at current prices, exceeding the corresponding revenues of April 2019 by 19.0%. For the first time since the pandemic broke out, travel receipts in one month were higher than those in 2019 (the fact that April 2022 was Catholic Easter) also contributed to this result). Similar positive data was announced by the Civil Aviation Authority, with the arrivals of passengers from abroad in May 2022 (2.4 million) exceeding those of May 2019. Finally, for the entire 4 months January-April 2022, travel receipts increased to € 1.1 billion from € 0.2 billion in the corresponding 4 months last year. This amount corresponds to 86.6% of the travel receipts of the 4 months January-April 2019 and is a positive indication of the expected course of tourism revenue for the whole year.

Travel receipts together with those in the transport sector and the two remaining installments under debt relief measures (the Eurogroup last week approved the disbursement of the penultimate installment of € 748 million, with one last equal installment to be disbursed). towards the end of the year if the pending reforms are completed) are expected to halt to some extent the widening of the current account deficit triggered by the widening of the goods deficit. In the period January-April 2022, the current account deficit widened by € 3.3 billion. Due to the energy crisis and the weight of imports in the productive model of the Greek economy, the goods deficit increased by € 4.7 billion. with this amount being partially offset by the increase in the services surplus and the secondary income balance by € 0.9 billion and € 0.9 billion respectively. In the coming months, due to higher revenues expected from tourism, the widening of the current account deficit may slow down significantly or even reverse.

Nevertheless, the current account deficit remains large for the third year in a row, which equates to high net foreign borrowing. In an environment of sharp fluctuations in international financial markets and the tightening of monetary policy by major central banks, the containment of the cost of financing the external deficit is linked, in addition to other factors (eg European Central Bank interventions) and with the European Central Bank). of the reliability of the Greek economy. The termination of the enhanced surveillance regime and the entry of Greece into the group of countries under the evaluation framework of post-program surveillance (Spain, Portugal, Cyprus and Ireland), is a chapter of credibility. The policies that were adopted and evaluated positively by the institutions in the 4 years of enhanced supervision (2018-2022) contributed to its creation. The next step in further increasing the reliability stock, with benefits in the short and medium term, is to recover the investment grade and implement an effective fiscal adjustment plan.

Enhancing credibility is an investment as it creates capital. It is an important condition for the Greek economy to enter a multi-year growth path in order to cover to some extent the distance that separates it from the EU-27 in terms of GDP per capita. According to a recent Eurostat publication, Greece’s GDP per capita in purchasing power parity (PPS) was 64.6% of the EU-27 in 2021 (penultimate position, ie 26th) from 95.3% in 2009 (14th position) . Growth rates are required to be approximately 2.2 percentage points higher than those of the EU-27 so that in a decade Greece’s per capita GDP is at 80% of the EU-27 per capita GDP (2.7 percentage points if the comparison with the Eurozone). Given the constraints faced by the productive factor of labor due to the demographic problem, the above scenarios presuppose a large increase in the productivity of the economy. Finally, the goal of converging, albeit partially, Greece’s per capita GDP (64.6) with that of the EU-27 (100) or the Eurozone (105.5) per capita is important to achieve with a productive model. to make it sustainable (credibility, competitiveness, quality of institutions, fiscal discipline). The experience of the 2000s is still fresh.