The Commission sees accuracy in Greece in 2024: What the winter forecasts show

The European Commission expects Greece to continue to perform well this year, according to its winter forecasts, which were published last Wednesday.

As recorded by Giannis Agouridis in AVGI, According to the Commission, annual inflation based on the harmonized consumer price index stood at 4.21% in 2023. At the same time, core inflation, excluding energy and food prices, was significantly higher, at 5.31% on average in 2023, but fell below the level of inflation based on the harmonized consumer price index by December 2023, indicating that price increases have spread throughout Greece.

The tightening of the labor market, together with the recently announced increase in the minimum wage (from April 2024), are expected to exert some upward pressure on prices, which would partially offset the effect of lower energy prices on inflation. Overall, inflation is expected to decline more gradually in 2024 and 2025, to 2.71% (from a previous forecast of 2.81%) and 2.1%, respectively. This is marginally lower than in the autumn projections for both years.

Asterisks for the Recovery Fund

Greece's real GDP grew by 2.21% in 2023, instead of the initial estimate of 2.31%, according to the European Commission's winter forecasts that were released. However, the government's state budget is more optimistic, as it is based on the assumption of a GDP growth rate of 2.91% in 2024.

According to the Commission, investment in Greece is expected to increase, but only if the Recovery Plan is implemented. It is estimated that there will be a shift in investment from construction to more productive investments, such as equipment and machinery.

Weaker base

At the European level, following sluggish growth last year, the EU economy entered 2024 on a weaker footing than expected, according to the Commission. The European Commission's winter interim forecast revises growth in both the EU and the euro area to 0.51% in 2023, down from 0.61% in the autumn forecast, and to 0.91% (from 1.31%) in the EU and 0.81% (from 1.21%) in the euro area in 2024. In 2025, economic activity is still expected to expand by 1.7% in the EU and 1.5% in the euro area.

Inflation is expected to slow down faster than predicted in the fall. In the EU, inflation according to the harmonized consumer price index is projected to decline from 6.31% in 2023 to 3.01% in 2024 and 2.51% in 2025. In the euro area, it is expected to slow from 5.41% in 2023 to 2.71% in 2024 and 2.21% in 2025.

Uncertainty due to geopolitical developments

These projections are subject to uncertainty due to ongoing geopolitical tensions and the risk of further escalation of the conflict in the Middle East. The increase in shipping costs following the trade disruptions in the Red Sea is expected to have only a marginal impact on inflation. However, further disruptions could cause new supply bottlenecks, which could limit production and push up prices.

Domestically, risks to the baseline projections for growth and inflation relate to whether consumption, wage growth and profit margins will exceed expectations or fall short of them, as well as how high interest rates will remain and for how long. Climate risks and the increasing frequency of extreme weather events continue to pose a threat.