Part of 2022 Outlook: Special Edition – New Year Projections by the ELIAMEP experts. A Greek version was published in the daily «TA ΝΕΑ» (Thursday 30 December 2021).
After two difficult years, the international economy seems to be finding its feet again and making up for lost ground. According to the latest estimates by international organisations, the global economy is expected to grow by at least 4.5% in 2022. The European economy, which was hit hardest by the first wave of the pandemic, and by the lockdowns introduced to deal with it, is projected to grow almost as fast.
In this context, the outlook for the Greek economy is modestly optimistic. On the one hand, the pandemic crisis has dealt another severe blow to an economy already weakened by a deep and prolonged recession. On the other hand, the latest evidence reveals remarkable dynamism: European Commission forecasts put the growth rate in 2022 at just over 7% (the second highest rate in the euro area after Ireland).
Whether these favourable forecasts prove correct will depend, among other things, on how political and social actors (in the world, Europe, and Greece) deal with the various threats to the economy.
The pandemic is one of these threats. According to IMF estimates (October 2021), the percentage of the fully vaccinated as a share of total population was 58% in developed countries, 36% in emerging ones, and just 4% in developing economies. The spread of new mutations is a reminder that the war against the coronavirus will not be won anywhere before it is won everywhere.
The rapid development of effective and safe vaccines has been a triumph for science and a testament to the dynamism and creativity of Western democracies. Within Europe, the changing geography of vaccinations has rebutted some stereotypes and reinforced others. The alleged North-South gap in cultural beliefs and social attitudes has been turned upside down. Portugal and Spain top the vaccination league in Europe (and the world). The campaign to give everyone a jab is proceeding considerably more rapidly and more smoothly in Italy than it is in Germany. Reactions to the restrictions imposed on those who refuse to be vaccinated in order to protect society as a whole have been far more violent in the Netherlands than in Greece.
At the same time, the geography of vaccinations seems to confirm the political chasm separating East from West. In almost all Eastern European countries the share of fully vaccinated citizens is lower than it is in almost all Western European countries. Greece, even though lagging behind other Western European countries in this respect, does better than all Eastern European countries except Lithuania and Latvia.
Meanwhile, the rapid progress made by science in adapting the vaccines to new mutations, and in developing drugs to treat effectively those who have been infected, makes it reasonable to expect that the coronavirus will soon become endemic: not vanish, but gradually fade away — like, for instance, the flu. This will also depend on the maturity of the citizenry. The apparently broad consensus in Greece and elsewhere on measures to nudge those who have not yet had the jab to do so soon is ground for optimism that the new mutations will be dealt with effectively. The more people get vaccinated, the lower the cost in human lives, and for the economy.
Another legacy of the pandemic is the sharp increase in public debt, to 99% of GDP in the Euro Area as a whole (and to 206% of GDP in Greece). As long as interest rates remain low, debt service will be affordable. In the medium term, the question is how to achieve the necessary reduction in the debt-to-GDP ratio without fatally undermining the recovery. In 2022, fiscal policy will remain expansionary, while EU funds will boost public investment. In the meantime, the resumption of economic activity and the gradual withdrawal of relief measures will bring budget deficits down.
International organisations and most analysts agree that rising inflation in Europe will probably turn out to be temporary, largely caused by hikes in energy costs. If forecasts are confirmed, and if central banks retain their composure (as they seem to be doing), the economic recovery will not be undermined by premature and abrupt changes in monetary policy.
The disruption wrought by the pandemic on global supply chains will slow recovery down in the short term, in proportion to each economy's dependence on imported scarce inputs. For example, the OECD has estimated that delays in supplying the automotive industry with semiconductors (mainly from Taiwan) cost the German economy more than 1.5% of its GDP in 2021.
The new year finds Greece 25% poorer than it was in 2007; by comparison, the European economy has grown by 11% over the same period. To make up for lost ground, Greece needs to play its hand as skilfully as it can. The EU funds flowing into the economy, following the historic decision to launch an ambitious programme to heal the wounds left by the pandemic (and the Euro crisis), to tackle climate change, and to prepare for the digital revolution, are our best cards. The country cannot afford to waste a single euro.
