The Bank of Greece (BoG) on Wednesday tabled its Interim Report on Monetary Policy for 2024, according to which Greek economic growth is forecast at 2.4% in 2023, rising marginally to 2.5% in 2024 and 2025 and then easing to2.3% in 2026.

The report indicates a significant drop in headline inflation, measured by the Harmonised Index of Consumer Prices (HICP), from 7.3% in January to 2.9% in November 2023, primarily driven by substantial declines in energy prices. Despite this, HICP excluding energy exhibited notable increases due to upward pressures on food prices, non-energy industrial goods, and services.

Banking sector: Higher interest rates, slowing credit growth, stabilization of deposits

In terms of the banking sector, the report notes that from January to October 2023, there was a persistent increase in bank interest rates, influenced by the adjustment in the overall monetary policy stance, while total bank deposits from the domestic private sector saw a modest rise of only EUR 0.3 billion during this period (compared to EUR +3.6 billion in January-October 2022).

The upgrade of Greece’s sovereign credit rating mitigates the impact of monetary policy tightening on bond yields

The report says that Central banks’ policy rate increases led to higher yields on Greek government bonds, corporate, and bank-issued bonds. Yet, the upward pressure on Greek government bond yields in the second half of 2023 was counteracted by credit rating upgrades.

Policy recommendations

Addressing inflation requires businesses to control markups, the report points out, and authorities to intensify short-term controls against profiteering and oligopolistic practices.

Swift and effective utilization of EU recovery funds (NGEU) and the Multiannual Fiscal Framework 2021-2027 is crucial. These funds should prioritize economically viable, environmentally sustainable high-tech sectors and infrastructure improvements.

Reforms are needed, particularly in justice delivery, involving modernization, digitization, legislation for staff performance, and revising the judicial map.

Enhancing the business environment, cutting red tape, digitalizing public administration, and improving tax administration can stimulate investment and labor productivity.

Tackling tax evasion creates fiscal space for broader tax system reforms, promoting fairness.

Reducing the government debt-to-GDP ratio remains a priority.