## sipea2026071

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---

### Overview and motivation
- Greece’s current account (CA) deficit has widened in recent years, reversing much of the post-crisis adjustment.
- Recent deterioration initially reflected: the collapse of tourism during the pandemic, higher energy prices, and rising interest rates after Russia’s war in Ukraine.
- Recent CA deficit driven by strong goods imports associated with robust domestic demand, including NGEU-financed investment.
- Greece records the second largest CA deficit in the euro area and the largest negative net international investment position (NIIP).
- Chapter focus: CA dynamics from cyclical and structural perspectives, emphasizing saving–investment balances, production-side competitiveness, implications for recent CA developments, and the relationship between structural impediments and firms’ competitiveness.

### Shifting sectoral saving–investment (SI) balances
- Pre-crisis CA deficits largely public-sector driven; post-crisis fiscal consolidation shifted the general government (GG) SI balance into surplus (aside from temporary pandemic support).
- Recent CA deficits primarily private-sector driven:
  - Non-financial corporations’ (NFCs’) SI balance turned negative.
  - Households’ saving remained subdued.
- Drivers of the private SI deficit:
  - NFCs: Higher investment driven by NGEU projects, pent-up investment needs after post-crisis underinvestment, and needs related to ICT and energy security.
  - Households: Low gross saving despite strong economic growth; limited real wage growth; high living costs (housing, energy, food) and fiscal consolidation (lower net social benefits, higher tax burdens) weigh on disposable income.
- Measurement caveats:
  - Large share of self-employed and micro firms, and remaining informality, complicate household saving measurement.
  - Discrepancies exist between saving in the non-financial account (SNA) and net lending/borrowing in the financial account.

### Persistent domestic production gaps and trade structure
- Greece generates substantial net services exports (mainly tourism and shipping) but remains heavily reliant on goods imports across consumption, intermediate, and capital goods—limited domestic production base.
- Key trade statistics and patterns:
  - Trade balance has averaged a deficit of 5.7 percent of GDP since 2000.
  - Large goods deficit of 13.7 percent of GDP more than offset a service surplus of 8.0 percent of GDP, accounting for most of the CA deficit of 6.8 percent of GDP.
  - Exports-to-GDP ratio almost doubled since the early 2000s, reaching about 40 percent of GDP in 2025 (euro area average: 49 percent).
- Composition of exports:
  - Goods exports driven by refined petroleum products and food, beverages, and agricultural products.
  - Emerging dynamic sectors: pharmaceuticals, cosmetic products, and medical devices.
- Domestic value-added limitations:
  - Estimated domestic value-added multiplier of exports is about 0.43 on average (implying €1 of exports generates about €0.43 in domestic value added).
  - Large sectors—refined petroleum, metals, food products—remain in lower value-added activities.
  - Some higher-technology sectors have rapid export growth but limited contribution to domestic value added.
- Sectoral indicators referenced: Average: 55 percent and Average: 0.35 (as presented in Figure 7).

### Cost and non-cost competitiveness; productivity
- Export growth supported by improved cost competitiveness:
  - Unit labor cost (ULC)-based real effective exchange rate (REER) depreciated by more than 30 percent from its peak in 2011Q3.
  - Wage adjustments via labor market reforms facilitated internal devaluation.
- Productivity and wage dynamics:
  - Improvements in underlying productivity have been sluggish.
  - Post-crisis ULC depreciation driven mainly by real wage compression; labor productivity contributed little and at times exerted upward pressure on ULCs before a recent partial improvement.
  - CPI-based REER adjustments were much more contained than ULC-based rate adjustments.
- Structural impediments: product-market frictions, high non-wage costs (regulatory and administrative burdens, energy costs) limit price adjustment and productivity gains.

### External financial flows and debt service burdens (Box 1)
- NIIP (percent of GDP) increased after the crisis, reflecting elevated external financing needs and a sharp contraction in nominal GDP.
- Debt service burdens have remained contained because the bulk of external debt consists of low-interest official loans with very long maturities and extended grace periods.
- External financing evolution:
  - Post-crisis external financing initially dominated by official flows; normalized as market access was restored.
  - FDI inflows strengthened, reflecting the privatization program and improved investor confidence.
  - NIIP began to improve after the pandemic due to contained financing needs, substantial fiscal consolidation, and strong nominal GDP growth.

### Cyclical implications, simulation approach, and quantitative markers
- Structural weaknesses amplifying CA deficit widening:
  - Subdued private saving and limited domestic value-added activities due to sluggish productivity growth.
  - Low household saving implies hand-to-mouth consumption; income gains translate quickly into consumption rather than saving.
  - Stagnant NFC value-added combined with rising investment generates a negative SI balance.
  - Insufficient domestic production capacity raises import content of demand and increases CA sensitivity to commodity price and interest rate movements.
  - Highly negative NIIP amplifies exposure to interest rate movements through higher primary income payments.
- Simulation approach (parsimonious):
  - Domestic demand: Imports associated with domestic demand estimated by applying input–output–derived import multipliers to observed changes in consumption and investment.
    - Estimated import multipliers: 0.3 for consumption and 0.4 for investment.
  - Exports: Measured net of import content using an estimated import multiplier of about 0.4.
  - Fuel prices: Impact estimated based on the level of the fuel trade balance in 2019 and observed/projected fuel price changes informed by the WEO.
  - Interest rates: Impact captured via TARGET liabilities using the outstanding stock at the end of the previous year (assumed constant) and the 3-month euro area interest rate.
  - Nominal GDP: Growth and projections used to express the CA balance as a share of GDP.
- The approach complements the IMF External Balance Assessment (EBA) methodology by:
  - Adjusting the CA balance for cyclical factors (output gap and commodity terms of trade).
  - Accounting for distinct spillovers of each demand component (consumption, investment, exports) through Greece-specific sectoral input–output linkages and global interest rate dynamics.
- Key quantitative markers preserved:
  - Trade balance average deficit since 2000: 5.7 percent of GDP.
  - Goods deficit: 13.7 percent of GDP.
  - Service surplus: 8.0 percent of GDP.
  - Current account deficit: 6.8 percent of GDP.
  - Exports-to-GDP ratio in 2025: about 40 percent of GDP (EA average: 49 percent).
  - ULC-REER depreciation: more than 30 percent from peak in 2011Q3.
  - Estimated domestic value-added multiplier of exports: about 0.43 on average.
  - Input–output–derived import multipliers used in simulations: 0.3 for consumption; 0.4 for investment; export import multiplier about 0.4.

### Drivers of the recent CA deficit (simulation findings and projection)
- Main simulation findings:
  - Recent widening of the CA deficit largely reflects strong domestic demand, especially investment that has high import contents, alongside elevated global fuel prices and interest rates.
  - Rising investment and consumption have been the main drivers of the deterioration in the CA balance, while the net contribution of exports remains modest once their import content is taken into account.
  - Investment has had a disproportionately large impact relative to its growth share, reflecting its high import intensity.
  - By contrast, the effects of higher fuel prices and interest rates have been modest, as these pressures have eased since the onset of the war in Ukraine.
  - Estimates are subject to uncertainty, relying on static input–output relationships and not capturing dynamic responses.
- Quantitative/graphical note:
  - Figure 9 reports Estimated Impacts on CA Balance (Percent of GDP, cumulative changes from 2015-19 average) with components including: Imports induced by consumption; Imports induced by investment; Fuel prices; Nominal GDP growth; Interest rates; Exports, net of induced imports; Total; Actual.
- Projection:
  - Domestic demand growth is projected to have peaked in 2025 and moderate thereafter, while investment is expected to remain robust, reflecting persistent investment gaps.
  - Absent structural reforms to raise domestic value-added capacity and productivity, these trends are likely to continue to weigh on the CA balance.

### Structural impediments and firm-level evidence
- Data and scope:
  - Firm-level data from the World Bank Enterprise Surveys (WBES) for EU countries.
  - Focus on manufacturing firms in EU countries over 2008–2023.
  - Sample comprises approximately 10,000 firms, including Greece’s survey waves in 2018 and 2023.
- Key constraints analyzed (firms’ perceived business obstacles):
  - (i) regulatory and administrative burdens,
  - (ii) competition from the informal sector,
  - (iii) limited access to skilled labor (availability of an educated workforce),
  - (iv) financing constraints (access to finance).
- Measurement and findings:
  - Obstacles measured as binary indicators where “major” or “severe” responses equal one.
  - Greece reports substantially more severe constraints than EU peers, with several indicators exceeding the 90th percentile of the EU distribution.
  - Regressions show structural impediments strongly associated with weaker firm performance (sales growth and export participation), controlling for firm characteristics and country-by-year fixed effects.
  - Export participation particularly hindered by regulatory and administrative burdens and competition from the informal sector.
  - Effects particularly pronounced for young firms (age below the median of 32 years); significant differences not found across firm size.

### Counterfactual simulations: gains from reducing structural gaps
- Reform scenario:
  - Assume reforms that close 50 percent of the gap between Greece and the EU frontier (defined as the top decile performer for each indicator).
- Estimated impacts under this scenario:
  - Real sales growth increase: about 1.8 percentage points for the full sample.
  - Probability of exporting: rise by 7.3 percentage points for the full sample.
  - For young firms:
    - Sales growth gains of 2.7 percentage points.
    - Probability of exporting gains of 8.8 percentage points.
- Contribution of specific constraints:
  - Improved access to finance accounts for the largest share of the sales growth effect (around 0.6 percentage points) for the full sample.
  - Remaining gains broadly comparable across skilled labor availability, reduced informality, and lower regulatory and administrative burdens.
  - For young firms, regulatory and administrative burdens and access to finance play an even more prominent role.
  - Increased export participation mainly driven by improvements in regulatory and administrative conditions.

### Policy recommendations and financing implications
- Overarching objective:
  - Strengthen the external position by enhancing international competitiveness and expanding domestic supply capacity so growth generates higher domestic income and higher private saving, reducing reliance on CA deficits.
- Priority structural reforms:
  - Regulatory and administrative burdens: streamline administrative procedures, lower compliance costs, improve regulatory quality to reduce fixed costs and support scaling—especially for young firms.
  - Informality: continue digitalization and tax compliance efforts to level the playing field and raise productivity.
  - Skills shortages: alleviate through education, training, and lifelong learning to facilitate transition to higher value-added activities.
  - Access to finance: improve especially for high-return investment including digital investment, to translate ongoing investment into sustained gains in domestic value added.
- Fiscal policy stance:
  - Maintain a prudent fiscal stance to contain excessive domestic demand pressures that could deteriorate the current account balance.
  - Within that fiscal framework, reallocate expenditure toward growth-enhancing priorities—such as public investment and critical social spending—to support private sector investment and household disposable income.
- EU-level reforms to complement national reforms:
  - Complete the EU single market to set a level playing field and reduce trade barriers, enabling Greek firms to scale beyond relatively small domestic markets.
  - Advance the Savings and Investments Union to lower financing costs and mobilize risk capital.
  - Promote greater labor mobility to mitigate demographic pressures and support skill upgrading.
  - Integrate the energy market to help achieve energy security, reduce energy price and volatility, and lower production costs and the energy trade deficit.
- Financing implications:
  - A credible reform agenda, alongside prudent macroeconomic policies, would enhance Greece’s attractiveness for foreign direct investment and other stable capital flows, reducing vulnerabilities to external shocks and supporting a more balanced and sustainable growth model over time.

### Appendix I — Input–Output Analysis (method and caveats)
- Framework summary:
  - Multi-sector input–output framework linking intermediate demand (AX), final demand (F = C + I + EX), gross domestic output (A), and imports (IM).
  - Imports endogenously determined as a constant share of gross output: IM = diag(δ) A.
  - Gross output expression uses an adjusted Leontief inverse:
    - Gross output = [I − (A − δ)]−1 × F, where L_adj denotes the adjusted Leontief inverse correcting the standard Leontief inverse L = (I − A)−1 for import leakages.
  - Value added (VA) and total imports (IM_total) expressed as:
    - Value added = v′ L_adj × F (v is value-added shares vector).
    - Imports = δ′ L_adj × F (δ is import shares vector).
  - The i-th element of value-added and import multipliers measures percent change in aggregate VA or imports from a one-percent increase in final demand in sector i.
- Data and implementation:
  - Uses input–output tables compiled by the Hellenic Statistical Authority (ELSTAT) under ESA 2010.
  - Latest available data used for 2020, with robustness checks for 2015 and 2010 vintages.
  - Original 62 domestic sectors aggregated into 40 sectors; analysis focuses on export shocks from 14 goods-producing sectors, excluding mining and quarrying.
- Caveats:
  - Framework treats economic structure—including input–output relationships and import shares—as fixed and does not capture potential structural changes in response to large shocks.
  - Input–output structure assumed identical across components of final demand within each sector; sectoral concentration of exports may introduce estimation errors.
  - Measurement errors in input–output tables may be non-negligible.

### Appendix II — WBES details and empirical approach
- WBES overview:
  - Firm-level survey covering firms’ characteristics, operational conditions, and perceived constraints.
  - Surveys conducted periodically in over 160 economies; each country round typically covers between 500 and 1,000 firms.
  - Sample stratified by firm size, sector, and geographic location; repeated cross-sections used for analysis.
- Sample and empirical specification:
  - Focus on manufacturing firms in EU countries for 2008–2023; sample ~10,000 firms; Greece surveyed in 2018 and 2023.
  - Performance indicator regressed on perceived obstacles, firm controls, and country-year fixed effects; performance measures: sales growth (averaged over previous two years) and export participation (binary).
  - Obstacles constructed as binary indicators where “major” or “severe” responses equal one; regulatory and administrative burden indicator averages reported obstacles related to tax administration, customs and trade regulations, courts, labor regulation, and political instability.
  - Firm-level controls include log TFP, foreign ownership indicator, log employment, firm age, and firm age squared; standard errors clustered at the country-year level.
  - Analysis conducted for full sample and subsample of young firms (age below median of 32 years).
- Reporting and robustness:
  - Full regression results reported in Annex II (Table 2); Table A2 in Annex II shows most indicators remain statistically significant when included jointly.

*Prepared by Tomohide Mineyama; research assistance by Summer (Yutian) Cai; April 30, 2026.*

### 1. External Financial Flows and Debt Service Burdens ___________________________________ 5

### 1. External Financial Flows and Debt Service Burdens

### Overview and motivation
- Greece’s current account (CA) deficit has widened in recent years, reversing much of the post-crisis adjustment.
- The deterioration initially reflected: the collapse of tourism during the pandemic, higher energy prices, and rising interest rates after Russia’s war in Ukraine.
- The recent CA deficit is driven by strong goods imports associated with robust domestic demand, including NGEU-financed investment.
- Greece records the second largest CA deficit in the euro area and the largest negative net international investment position (NIIP).
- The chapter examines CA dynamics from cyclical and structural perspectives, focusing on saving–investment balances, production-side competitiveness, implications for recent CA developments, and the relationship between structural impediments and firms’ competitiveness.

### Shifting sectoral saving–investment (SI) balances
- Pre-crisis CA deficits were largely public-sector driven; post-crisis fiscal consolidation shifted the general government (GG) SI balance into surplus (aside from temporary pandemic support).
- Recent CA deficits are primarily private-sector driven:
  - Non-financial corporations’ (NFCs’) SI balance turned negative.
  - Households’ saving remained subdued.
- Drivers of the private SI deficit:
  - NFCs: Higher investment driven by NGEU projects, pent-up investment needs after post-crisis underinvestment, and needs related to ICT and energy security.
  - Households: Low gross saving despite strong economic growth; real wage growth limited; high living costs (housing, energy, food) and fiscal consolidation (lower net social benefits, higher tax burdens) weigh on disposable income.
- Measurement caveats:
  - Large share of self-employed and micro firms, and remaining informality, complicate household saving measurement.
  - Discrepancies exist between saving in the non-financial account (SNA) and net lending/borrowing in the financial account.

### Persistent domestic production gaps and trade structure
- Greece generates substantial net services exports (mainly tourism and shipping) but remains heavily reliant on goods imports across consumption, intermediate, and capital goods—limited domestic production base.
- Key trade statistics and patterns:
  - Trade balance has averaged a deficit of 5.7 percent of GDP since 2000.
  - Large goods deficit of 13.7 percent of GDP more than offset a service surplus of 8.0 percent of GDP, accounting for most of the CA deficit of 6.8 percent of GDP.
  - Exports-to-GDP ratio almost doubled since the early 2000s, reaching about 40 percent of GDP in 2025 (euro area average: 49 percent).
- Composition of exports:
  - Goods exports driven by refined petroleum products and food, beverages, and agricultural products.
  - Emerging dynamic sectors: pharmaceuticals, cosmetic products, and medical devices.
- Despite export growth, domestic value-added is limited:
  - Estimated domestic value-added multiplier of exports is about 0.43 on average (implying €1 of exports generates about €0.43 in domestic value added).
  - Large sectors—refined petroleum, metals, food products—remain in lower value-added activities.
  - Some higher-technology sectors have rapid export growth but limited contribution to domestic value added.

### Cost and non-cost competitiveness; productivity
- Export growth supported by improved cost competitiveness:
  - Unit labor cost (ULC)-based real effective exchange rate (REER) depreciated by more than 30 percent from its peak in 2011Q3.
  - Wage adjustments via labor market reforms facilitated internal devaluation.
- Productivity and wage dynamics:
  - Improvements in underlying productivity have been sluggish.
  - Post-crisis ULC depreciation driven mainly by real wage compression; labor productivity contributed little and at times exerted upward pressure on ULCs before a recent partial improvement.
  - CPI-based REER adjustments were much more contained than ULC-based rate adjustments.
- Structural impediments: product-market frictions, high non-wage costs (regulatory and administrative burdens, energy costs) limit price adjustment and productivity gains.

### Box 1 — External financial flows and debt service burdens
- NIIP (percent of GDP) increased after the crisis, reflecting elevated external financing needs and a sharp contraction in nominal GDP.
- Debt service burdens have remained contained because the bulk of external debt consists of low-interest official loans with very long maturities and extended grace periods.
- External financing evolution:
  - Post-crisis external financing initially dominated by official flows; normalized as market access was restored.
  - FDI inflows strengthened, reflecting the privatization program and improved investor confidence.
  - NIIP began to improve after the pandemic due to contained financing needs, substantial fiscal consolidation, and strong nominal GDP growth.

### Cyclical implications of structural challenges and simulation approach
- Structural weaknesses amplifying the CA deficit widening:
  - Subdued private saving and limited domestic value-added activities due to sluggish productivity growth.
  - Low household saving implies hand-to-mouth consumption; income gains translate quickly into consumption rather than saving.
  - Stagnant NFC value-added combined with rising investment generates a negative SI balance.
  - Insufficient domestic production capacity raises import content of demand and increases CA sensitivity to commodity price and interest rate movements.
  - Highly negative NIIP amplifies exposure to interest rate movements through higher primary income payments.
- Parsimonious simulations quantify contributions of recent domestic and external dynamics using the following assumptions:
  - Domestic demand: Imports associated with domestic demand estimated by applying input–output–derived import multipliers to observed changes in consumption and investment.
    - Estimated import multipliers: 0.3 for consumption and 0.4 for investment.
  - Exports: Measured net of import content using an estimated import multiplier of about 0.4.
  - Fuel prices: Impact estimated based on the level of the fuel trade balance in 2019 and observed/projected fuel price changes informed by the WEO.
  - Interest rates: Impact captured via TARGET liabilities using the outstanding stock at the end of the previous year (assumed constant) and the 3-month euro area interest rate.
  - Nominal GDP: Growth and projections used to express the CA balance as a share of GDP.
- The approach complements the IMF External Balance Assessment (EBA) methodology by:
  - Adjusting CA balance for cyclical factors (output gap and commodity terms of trade).
  - Accounting for distinct spillovers of each demand component (consumption, investment, exports) through Greece-specific sectoral input–output linkages and global interest rate dynamics.

### Key quantitative markers and sector indicators preserved from the chapter
- Trade balance average deficit since 2000: 5.7 percent of GDP.
- Goods deficit: 13.7 percent of GDP.
- Service surplus: 8.0 percent of GDP.
- Current account deficit: 6.8 percent of GDP.
- Exports-to-GDP ratio in 2025: about 40 percent of GDP (EA average: 49 percent).
- ULC-REER depreciation: more than 30 percent from peak in 2011Q3.
- Estimated domestic value-added multiplier of exports: about 0.43 on average.
- Input–output–derived import multipliers used in simulations: 0.3 for consumption; 0.4 for investment; export import multiplier about 0.4.
- Figures presented in sectoral analysis include averages shown in Figure 7: Average: 55 percent and Average: 0.35.

*Prepared by Tomohide Mineyama; research assistance by Summer (Yutian) Cai; April 30, 2026.*

### 12.      The simulations suggest that the recent widening of CA deficit largely reflects strong

### sipea2026071 - 12.      The simulations suggest that the recent widening of CA deficit largely reflects strong

### Drivers of the recent current account (CA) deficit
- Main findings from simulations:
  - The recent widening of the CA deficit largely reflects strong domestic demand, especially investment that has high import contents, alongside elevated global fuel prices and interest rates.
  - Rising investment and consumption have been the main drivers of the deterioration in the CA balance, while the net contribution of exports remains modest once their import content is taken into account.
  - Investment has had a disproportionately large impact relative to its growth share, reflecting its high import intensity.
  - By contrast, the effects of higher fuel prices and interest rates have been modest, as these pressures have eased since the onset of the war in Ukraine.
  - The estimates are subject to uncertainty, as they rely on static input–output relationships and do not capture dynamic responses.
- Quantitative/graphical note:
  - Figure 9 reports Estimated Impacts on CA Balance (Percent of GDP, cumulative changes from 2015-19 average) with components including: Imports induced by consumption; Imports induced by investment; Fuel prices; Nominal GDP growth; Interest rates; Exports, net of induced imports; Total; Actual.
- Projection:
  - Domestic demand growth is projected to have peaked in 2025 and moderate thereafter, while investment is expected to remain robust, reflecting persistent investment gaps.
  - Absent structural reforms to raise domestic value-added capacity and productivity, these trends are likely to continue to weigh on the CA balance.

### Structural impediments and firms’ performance (firm-level evidence)
- Data and scope:
  - Analysis uses firm-level data from the World Bank Enterprise Surveys (WBES) for EU countries.
  - Focus on manufacturing firms in EU countries over the period 2008–2023.
  - Sample comprises approximately 10,000 firms, including observations from Greece’s survey waves in 2018 and 2023.
- Key constraints analyzed (from firms’ perceived business obstacles):
  - (i) regulatory and administrative burdens,
  - (ii) competition from the informal sector,
  - (iii) limited access to skilled labor (availability of an educated workforce),
  - (iv) financing constraints (access to finance).
- Perception and measurement:
  - Obstacles are measured using firms’ self-reported assessments; indicator equals one if obstacle reported as “major” or “severe,” zero otherwise.
  - Greece reports substantially more severe constraints than EU peers, with several indicators exceeding the 90th percentile of the EU distribution.
  - The EU sample pools survey waves from 2009 to 2025; Greece shown as the average of the 2018 and 2023 survey rounds.
- Regression findings:
  - Structural impediments are strongly associated with weaker firm performance (sales growth and export participation), even after controlling for firm characteristics and country-by-year fixed effects.
  - Export participation is particularly hindered by regulatory and administrative burdens and competition from the informal sector.
  - Effects are particularly pronounced for young firms; significant differences are not found across firm size.
  - Young firms defined as age below the median of 32 years.

### Counterfactual simulations: potential gains from reducing structural gaps
- Reform scenario:
  - Assume reforms that close 50 percent of the gap between Greece and the EU frontier (defined as the top decile performer for each indicator).
- Estimated impacts under this scenario:
  - Real sales growth would increase by about 1.8 percentage points for the full sample.
  - The probability of exporting would rise by 7.3 percentage points for the full sample.
  - For young firms:
    - Sales growth gains of 2.7 percentage points.
    - Probability of exporting gains of 8.8 percentage points.
  - Contribution of specific constraints:
    - Improved access to finance accounts for the largest share of the sales growth effect (around 0.6 percentage points) for the full sample.
    - Remaining gains are broadly comparable across skilled labor availability, reduced informality, and lower regulatory and administrative burdens.
    - For young firms, regulatory and administrative burdens and access to finance play an even more prominent role.
    - Increased export participation is driven mainly by improvements in regulatory and administrative conditions.

### Policy recommendations
- Overarching objective:
  - Strengthen the external position by enhancing international competitiveness and expanding domestic supply capacity so growth generates higher domestic income and higher private saving, reducing reliance on CA deficits.
- Priority structural reforms:
  - Remove barriers to firm growth and export participation by addressing:
    - Regulatory and administrative burdens: streamline administrative procedures, lower compliance costs, improve regulatory quality to reduce fixed costs and support scaling—especially for young firms.
    - Informality: continue digitalization and tax compliance efforts to level the playing field and raise productivity.
    - Skills shortages: alleviate through education, training, and lifelong learning to facilitate transition to higher value-added activities.
    - Access to finance: improve especially for high-return investment including digital investment, to translate ongoing investment into sustained gains in domestic value added.
- Fiscal policy stance:
  - Maintain a prudent fiscal stance to contain excessive domestic demand pressures that could deteriorate the current account balance.
  - Within that fiscal framework, reallocate expenditure toward growth-enhancing priorities—such as public investment and critical social spending—to support private sector investment and household disposable income.
- EU-level reforms to complement national reforms:
  - Complete the EU single market to set a level playing field and reduce trade barriers, enabling Greek firms to scale beyond relatively small domestic markets.
  - Advance the Savings and Investments Union to lower financing costs and mobilize risk capital.
  - Promote greater labor mobility to mitigate demographic pressures and support skill upgrading.
  - Integrate the energy market to help achieve energy security, reduce energy price and volatility, and lower production costs and the energy trade deficit.
- Financing implications:
  - A credible reform agenda, alongside prudent macroeconomic policies, would enhance Greece’s attractiveness for foreign direct investment and other stable capital flows, reducing vulnerabilities to external shocks and supporting a more balanced and sustainable growth model over time.

### Appendix I — Input–Output Analysis (method and caveats)
- Framework summary:
  - Multi-sector input–output framework linking intermediate demand (AX), final demand (F = C + I + EX), gross domestic output (A), and imports (IM).
  - Imports endogenously determined as a constant share of gross output: IM = diag(δ) A.
  - Gross output expression uses an adjusted Leontief inverse:
    - Gross output = [I − (A − δ)]−1 × F, where L_adj denotes the adjusted Leontief inverse correcting the standard Leontief inverse L = (I − A)−1 for import leakages.
  - Value added (VA) and total imports (IM_total) expressed as:
    - Value added = v′ L_adj × F (v is value-added shares vector).
    - Imports = δ′ L_adj × F (δ is import shares vector).
  - The i-th element of value-added and import multipliers measures percent change in aggregate VA or imports from a one-percent increase in final demand in sector i.
- Data and implementation:
  - Uses input–output tables compiled by the Hellenic Statistical Authority (ELSTAT) under ESA 2010.
  - Latest available data used for 2020, with robustness checks for 2015 and 2010 vintages.
  - Original 62 domestic sectors aggregated into 40 sectors; analysis focuses on export shocks from 14 goods-producing sectors, excluding mining and quarrying.
- Caveats:
  - Framework treats economic structure—including input–output relationships and import shares—as fixed and does not capture potential structural changes in response to large shocks.
  - Input–output structure assumed identical across components of final demand within each sector; sectoral concentration of exports may introduce estimation errors.
  - Measurement errors in input–output tables may be non-negligible.

### Appendix II — World Bank Enterprise Survey (WBES) details and empirical approach
- WBES overview:
  - Firm-level survey covering firms’ characteristics, operational conditions, and perceived constraints.
  - Surveys conducted periodically in over 160 economies; each country round typically covers between 500 and 1,000 firms.
  - Sample stratified by firm size, sector, and geographic location; repeated cross-sections used for analysis.
- Sample and focus:
  - Analysis focuses on manufacturing firms in EU countries for 2008–2023; sample ~10,000 firms; Greece surveyed in 2018 and 2023.
- Empirical specification:
  - Performance indicator (for firm i in country P in year t) is regressed on perceived obstacles A_i,P,t, firm controls Z_i,P,t, and country-year fixed effects FE_P×t.
  - Performance measures: sales growth (averaged over previous two years) and export participation (binary).
  - Obstacles constructed as binary indicators where “major” or “severe” responses equal one; regulatory and administrative burden indicator is the average of reported obstacles related to tax administration, customs and trade regulations, courts, labor regulation, and political instability.
  - Firm-level controls include log TFP (from Francis et al. (2020)), foreign ownership indicator, log employment, firm age, and firm age squared.
  - Standard errors clustered at the country-year level.
  - Analysis conducted for full sample and subsample of young firms (age below median of 32 years).
- Reporting and robustness:
  - Full regression results reported in Annex II (Table 2); full regression results and further robustness details noted (e.g., Table A2 in Annex II shows most indicators remain statistically significant when included jointly).

*Source: IMF staff estimates and analysis drawn from the specified content unit.*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026071.pdf_