Unicredit “sees” continued growth in the current two-year period for the Greek economy. In particular, according to its analysis, growth of 1.4% is expected for 2023 and 1.5% in 2024. According to the Italian bank‘s estimates, the acceleration of the utilization of the money of the Development Fund (about 11 billion euros) that have been disbursed so far it is expected to support investment growth, while the de-escalation of energy costs is estimated to limit the negative effects on private consumption from the slowdown in workers’ incomes and the lifting of untargeted government support measures.
After a better-than-expected performance of the economy in the fourth quarter (GDP growth of 1.4% quarter-on-quarter), UniCredit expects a mild contraction in GDP in the first quarter, reflecting the slowdown in domestic demand and mainly of investment, which was particularly strong at the end of last year.
At the fiscal level, analysts point to a narrowing of the primary deficit from 5% of GDP in 2021 to around 1% of GDP in 2022 (against a target of 1.6%), due to a recovery in tax revenues and lower spending forecasts for support measures against energy costs. Accordingly, the public debt is estimated to have decreased by more than 25 points, to 170% of GDP.
Estimates for the elections
Overall, UniCredit points out, this result gives the government a favorable starting point to bring the primary budget into surplus as planned this year, although headwinds from nominal growth will be much smaller.
Regarding the elections, the house notes that recent opinion polls show that the ruling New Democracy party is in a steady downward trend and that the difference with the radical-left party SYRIZA has now decreased to 3-4 percentage points, which makes the result of the elections uncertain. Analysts at UniCredit call the outcome of the election uncertain, as they point out that the government’s popularity is slipping due to the Tempi train disaster, despite its efforts to regain lost ground and despite raising the minimum wage by almost 10%.
The government’s upcoming proposal to reform the rail system, in light of the accident, is unlikely to be the catalyst to reorient the narrative around the tragedy to the issues raised by previous governments in Greece. The situation remains fluid, although it looks increasingly unlikely that any party could take an absolute majority and form a one-party government after recent events, the Italian bank concludes.
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