Consumption remains robust

The momentum of private consumption remains strong, despite inflation, Alpha Bank reported in its latest Weekly Economic Developments Bulletin, published on Thursday.

As it states, although the country’s growth mix has been gradually changing with the strengthening of fixed capital investments in the last two years, consumption has remained the main contributor in Greece’s economic growth. Private consumption grew by 5.8% in 2021 and 7.8% in 2022, helping to recover the losses observed during the pandemic, in terms of gross domestic product.

This finding by the bank’s Economic Studies Department is important, as the government’s goal is to reduce the share of private consumption in GDP, which is still very high today, to 69%. Instead, the government is seeking to increase the share of investment in GDP, currently at 14%, to reach the EU average of 22%. Already, the last two years have seen some increase in the share of investment, since it represented about 11% of GDP on average in the previous decade.

The bank’s bulletin notes that consumer spending is supported to an appreciable extent by the use of savings accumulated during the pandemic. This means that the average Greek household used up the official incomes they declared in 2022, while some certainly drew on their deposits. The latter, however, maintained an upward trend, while there are always undeclared incomes that can boost consumption and deposits. The fact that property values rose also boosted consumption as households felt their wealth had increased.

In the first stage of the pandemic, private consumption fell more sharply than gross disposable income, resulting in gross savings moving into positive territory. Consumer spending rebounded in 2021-22, with private consumption, at current prices, growing faster than gross disposable income, leading to a contraction in savings.

In 2023, consumption is expected to support economic activity for another year, albeit to a lesser degree than in previous years, the bulletin added.