Lowered growth expectations

Experts say the Greek economy will grow at a slower pace than expected, affecting expectations for inflation and also for interest rates.

Eurobank analyst Tassos Anastasatos predicts in a note that the Greek economy will grow by no more than 2% in 2024, much lower than the 2.5% predicted by the government in April, when it had downwardly revised the 2024 budget’s prediction of 2.9% growth.

In its June Monetary Policy Report, the Bank of Greece had already proved to be less optimistic than the government, predicting 2.2% growth for the year.

The anemic growth is not helped by the weakness of the rest of the eurozone, especially Germany. But the Eurobank analyst is hopeful that growth could accelerate to 2.4% in 2025 and 2026, as the whole of the eurozone recovers and the projects funded through the EU’s Recovery and Resilience Fund progress.

The fact remains that optimistic talk about annual growth approaching 3% is now a thing of the past and that the much-sought convergence with the average EU economy will be further delayed.

Speaking to a German financial website, Bank of Greece Governor Yannis Stournaras said that data show that growth in the eurozone has weakened and economic activity is slowing down. He referred to data about expectations in the manufacturing sector, the well-known PMI index, where growth is seen weakening for a fourth straight month.

Stournaras said that he still expects the European Central Bank to cut rates by the end of the year, but he noted that weakening growth could reduce inflation below the target level of 2%, necessitating a further stimulus.

The Eurobank note says that restrictive monetary policy constrains the economy, but this was before Stournaras predicted rate cuts. Eurobank estimates that private consumption and tourism, and not production, will remain the main engines of growth.