Greece: Staff Concluding Statement of the 2025 Article IV Consultation Mission
IMF News, January 30, 2025
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- Published: January 30, 2025
Economic outlook and key indicators
- Real GDP expanded by 2.3 percent (year-on-year; y/y) in the first three quarters of 2024, supported by NGEU-funded investment projects and robust private consumption.
- Unemployment rate fell to 9.5 percent (seasonally adjusted) in 2024Q3; vacancy rate has risen, reflecting labor shortages in construction, tourism-related services, and high-skill sectors.
- Labor force participation rate has gradually risen but remains among the lowest in EU, especially for women.
- Headline inflation at end-2024: 2.9 percent (y/y); core inflation at end-2024: 3.4 percent (y/y).
- Credit growth to the private sector accelerated to 9.4 percent (y/y) in 2024Q4.
- Current account deficit widened to an estimated 6.9 percent of GDP in 2024.
- Residential real estate prices continued to increase alongside credit growth.
- Renewable sources account for about 50 percent of total electricity generation.
Growth projections and risks
- Real GDP projected at 2.1 percent in 2025.
- Medium-term GDP growth forecast to moderate to around 1¼ percent.
- Current account deficit expected to narrow gradually below 4 percent of GDP in the medium term.
- Risks to growth described as balanced; risks to inflation tilted upward.
- Downside risks: growth slowdown in major euro area countries, deterioration of regional conflicts, global policy uncertainty.
- Upside/mitigating factors: acceleration of ambitious structural reforms could improve growth prospects.
- Inflation risks: stronger and more persistent-than-expected wage growth and energy price fluctuations could sustain services inflation.
Public finances and fiscal recommendations
- Public debt-to-GDP ratio estimated to have decreased by more than 50 percentage points from its peak in 2020 by end-2024.
- Primary surplus expected to remain high at around 2½ percent of GDP in 2025.
- Primary surplus in the medium term projected at 2.3 percent of GDP; public debt-to-GDP ratio projected to decrease by about 25 percentage points to below 130 percent by 2030.
- Policy recommendations:
- Continue fiscal consolidation in a growth-friendly manner.
- Enhance efficient public investment planning and management through stronger centralized coordination and procurement.
- Protect non-pension social spending (healthcare and education) while enhancing efficiency.
- Resist excessive increases in pensions and public-sector wages; ensure pension increases adhere to the established indexation formula without ad hoc adjustment.
- Use fiscal space from additional measures or better-than-expected performance for debt reduction and crucial social and capital spending, including energy security and the green transition.
- Revenue and tax policy recommendations:
- Continue reducing tax evasion and modernize tax administration leveraging digitalization under the Independent Authority for Public Revenue’s new medium-term strategy.
- Focus tax policy on broadening the tax base and increasing tax progressivity.
- Phase out inefficient tax expenditures, particularly regressive VAT exemptions on some goods and services.
- Consider raising carbon pricing, particularly in transport and industry sectors, to generate revenue for improved social protection and address climate change and energy security.
Structural reforms to boost potential growth
- Labor market and skills:
- Raise labor force participation and ensure a better skilled workforce.
- Increase availability of childcare and elderly care facilities to enable higher female labor participation.
- Reduce the tax wedge further, coupled with appropriate job search assistance and phasing out certain unemployment benefit features within the eligibility period to enhance work incentives.
- Upgrade and scale up lifelong learning with private sector participation, particularly in digital and green skills, and healthcare to reduce skill mismatches.
- Regulatory and judicial reforms:
- Accelerate regulatory reforms to reduce barriers to entry, especially in services, and improve regulatory quality using digitalization and regulatory impact assessments.
- Deepen the European single market to allow firms to scale and lift productivity.
- Advance judicial system reforms to accelerate resolution of court cases and fully implement the new insolvency framework to address crisis legacy distressed debt and facilitate reallocation of capital.
- Green and digital transition:
- Improve power connectivity with distant islands and enhance energy efficiency in industries and transportation.
- Scale up grid networks and storage solutions to support increased solar and wind capacity and ensure energy security.
- Complete the EU-wide Energy Union and promote private sector adoption of digital technologies, building on public administration digitalization and the new national artificial intelligence strategy.
Financial system resilience and supervision
- Banking sector performance:
- NPL ratio in systemically important banks dropped to around 3 percent in 2024Q3.
- Banks sustained high profits and issued capital instruments, boosting capital adequacy; Deferred Tax Credit (DTC) still represents a substantial share of prudential capital.
- Liquidity and funding risks have been markedly reduced with buffers well above prudential requirements and the EU average, aided by repayment of TLTROs and meeting MREL targets.
- Policy recommendations for banks and supervisors:
- Strengthen monitoring of credit risks and ensure adequate, forward-looking provisioning supported by adequate collateral valuations.
- Scrutinize banks’ adaptation of business models and reinforce risk management frameworks.
- Utilize elevated bank profits primarily to build capital buffers and improve the quality of capital; accelerate amortization of DTCs to enhance resilience and reduce the bank-sovereign nexus.
- Macroprudential measures:
- Welcome activation of borrower-based measures (BBMs) for mortgage loans (caps on loan-to-value (LTV) and debt service-to-income (DSTI) ratios) and a positive neutral countercyclical capital buffer (CCyB).
- BBMs should help contain excessive mortgage leverage buildup while limiting banks’ exposure to the housing boom; close monitoring warranted.
- Authorities could consider recalibrating the CCyB rate over the medium term to align with increasing uncertainty and enhance resilience given still relatively low combined capital buffers.
International Monetary Fund. Staff Concluding Statement of the 2025 Article IV Consultation Mission for Greece. January 30, 2025.