Her Eleftherias Kourtali
Oxford Economics downgraded its growth estimates for Greece to 3% from 3.3% a year earlier, as its prospects have deteriorated due to the Russian invasion of Ukraine. At the same time, it estimates that in 2023 the growth will be particularly strong, at 5.4%, while due to the now aggressive stance of the ECB, it sees a jump in Greek bond yields from 2.7% this year to 3.1% in 2023 and 3 , 5% in 2024.
As it notes, national accounts showed downward revisions for the second and third quarters last year, while the economy expanded slightly in the fourth quarter. The available data for the first quarter show cautious prospects for the Greek economy and a further slowdown is expected after the Russian invasion of Ukraine. Industrial production fell 4% month-on-month in January despite the first signs of loosening supply bottlenecks. In addition, climate data for February saw a decline in confidence in industry and retail, but Oxford Economics expects a broad and significant decline in climate in all sectors amid growing concerns about the war in Ukraine.
The emergence of the Omicron variant in the middle of the fourth quarter of last year and the war in Ukraine will affect the economic outlook for 2022. The economic effects of the conflict will be felt mainly through rising energy and food prices, deteriorating confidence, financial market turmoil, and further supply chain disruptions. Despite the positive impact of EU funding and the Recovery Fund, the outlook for this year is facing growing headwinds.
Therefore, Oxford Economics expects that the Greek economy will be hit further in 2022 due to the rapid escalation of the war in Ukraine and the impact on the economies of the eurozone. High energy prices and rising food inflation remain the main short-term challenges for the Greek economy, but other risks to the outlook are growing. Among other factors, production disruptions, financial market turmoil and trade slowdowns are already playing a role.
National accounts for the fourth quarter showed that GDP grew 0.4% on a quarterly basis, exceeding expectations for a slight decline given the difference in the Omicron variant and the consequent restrictions at the end of the quarter. The activity was supported by strong investment, the recovery of private consumption and the recovery of exports. In particular, exports of services increased by 9.5% on a quarterly basis, thanks to the longer-than-usual tourist season. But it is expected that this favorable momentum will stop in the first quarter of this year.
Inflation continued to surprise in February, reaching a record 26.2% per year, a 26-year high, with energy, transport and food prices being the main drivers of the uptrend. To offset the negative effects of higher energy costs on households and businesses, the government has expanded further subsidies to protect the most vulnerable and announced additional relief measures.
Oxford Economics now expects inflation to last longer than previously thought, due to the war in Ukraine and the consequent impact on prices (especially energy and food), before it begins to slow down gradually by the end of 2022. Inflation will average 4.6% this year (up from 2.8% previously).
Investment, however, will continue to support the recovery. Investments went fairly well during the pandemic and continued to show strong resilience in 2021, up more than 19% year-over-year. With NGEU funds to be spent in 2021-26, around € 31 billion (€ 17.8 billion in grants and € 12.7 billion in loans), investment will remain resilient in 2022. However, Oxford Economics is reducing its forecasts for an increase in investment to 10% (from 12% last month) due to the uncertainty stemming from the war in Ukraine.
Finally, he stressed, despite the headwinds and the growing uncertainty that emerged from the war in Ukraine, the ECB remained somewhat aggressive in its last meeting, posing additional challenges to Greece’s public finances in the short term. According to the estimates of Oxford Economics, the yields of the 10-year Greek bond will move in an upward trajectory in the coming years and from 2.7% this year will increase to 3.1% in 2023 and to 3.5% in 2024.
Source: Capital
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