Navigating Challenges: Mitsotakis' Second Term in Greece's Recovery
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Keeping up the recovery pace won’t be easy
Mitsotakis’ second legislature will be a challenging one. The election result very likely reflected a call for continuity from the electorate, particularly in the economic domain. Securing continuity in growth against a backdrop of normalising monetary and fiscal policies will not be an easy task.
A stable return to amply positive interest rates might complicate things on the private investment front, where Greece has yet to fill an investment gap since the times of the sovereign debt crisis. Here, keeping a strong focus on the implementation of the recovery and resilience plan might prove decisive.
On the fiscal front, as elsewhere, the restoration of fiscal rules in 2024 will reintroduce constraints that had disappeared over the recent crisis years. The good news is that Mitsotakis is having his second term in office at the height of the summer tourism season, which is a good start.
Returning Greece to investment grade an obvious target
Looking ahead, an obvious priority for Mitsotakis will likely be to bring Greece back into the investment-grade domain. With a possible new normal characterised by higher rates and restored fiscal discipline, rating agencies might wait for more reassuring evidence about future debt sustainability before pulling the trigger. Developments in state sector accounts until May point to a primary surplus already this year; this is a good starting point, but the resumption of the reform path, temporarily set aside over the pandemic/energy crisis years, will likely be as important to the eyes of the agencies.
In the parliamentary debate, which culminated in a positive vote of confidence for his government, Mitsotakis talked about the plan for the next four years as a multi-dimensional reform. Time will tell.
We expect Greece to remain a growth outperformer in the eurozone for at least a couple of years. For 2023, we project GDP growth of 1.7% year-on-year, with upside risks if the disinflation path proves faster than we are currently projecting.
Greek economy in a nutshell (%YoY)
