Of European Commission forecasts and of Greek country risk

by Antonis D. Papagiannidis

Greece seems all set to become a positive outlier for growth in 2022 within the EU and the Euro-area. So much is evident from the European Commission Winter Economic Forecast 2022 where Greece is expected to reach a 6% GDP increase, compared with just 3.2% for the Euro area and 3.3% for the EU. This is significantly higher than an earlier E.C. 4% forecast. As for inflation, the forecast for Greece stands at 10% for the whole of 2022, somewhat higher than the 8,5% expected for the Euro area, or the 9,3% for the EU “27”.

Somewhere here good news start to fade: growth for 2023 is expected to brake abruptly, with a 1% increase in GDP (to pick up at 2% for 2024). Earlier forecasts were clearly stronger, at 2,4% for 2023. Even so, Greece is expected to fare better than the 0,3% growth forecasted the Euro area 2023, with 1,5% for 2024.

Were one to tread on the minefield of fiscal deficits – the one where Greeks experienced their own version of Dante’s Descent to Hell some 10 years ago – Greece is expected to end 2022 at -4.1%, (compared with -3.3% for the Euro area and -3.7% for the EU) to scale down to -1,8% in 2023 and -0.8% in 2024: for Greece the deficit brake is coming back for more abruptly than is either the Euro area or the EU.

All of which allows for rather optimist expectations, as Greece prepares for its 2023 budget – along with hesitant steps to try its luck at financial markets. On Monday, the Greek Pubic Debt Management Agency will reopen – cautiously, in a closed auction and for a limited sum of ca. 200 Meuros – the issue of the 10-year bond maturing in June 2032 and carrying a 1.75% coupon. The yield for such paper recently stood at 4.50%-4.70% (with the 5% mark reached at mid-October). The current exercise is meant to dispel the feeling that Greece fears to tread this field; the PDMA is carefully un-political in its approach, still the uneasy impression spreads that the Greek economy is starting to face foreign investors’ reservations over the “country risk” dimension. This had clearly receded after 2017 and was expected to vanish from view after 2019. Still, the combination of increasingly bad Press over the current Greek wire-tapping plague with the self-infliated wound of exorcising political instability at each twist and turn has given the lie to the hope that Greece has not reached the proverbial safe haven after all. Such is the exact definition for “country risk”.