The Greek economy and its businesses have gone through extremely difficult times during the last decade, mostly due to long-term ineffective government economic policies. 2020 was supposed to be a year of significant economic growth. Instead, it faced a severe COVID-19 related recession. Now, we expect 2021-2022 will be the period of economic recovery and possibly a boom.
During the last 10 months of 2020, the world witnessed a massive economic contraction that resulted in huge losses in production, employment, income, and businesses. This, combined with historically high unemployment rates, resulted in immense human suffering. The pain was widespread, especially in less-developed economies and in economies that depend significantly on exports and tourism for their employment and income.
An example of the latter is the economy of Greece which is estimated to have lost more than 50% of its income derived from tourism, accommodations, and food services, in addition to the overall decline in exports. This is attributed primarily to the COVID-19 related lockdowns. The 2020 national income was estimated by the OECD (Organization for Economic Cooperation & Development) to have decreased -10% compared with +1.9% growth in 2019.
The Greek economy is significantly dependent on tourism, other exports of goods and services, and income from the merchant marine industry. Greece is said to be the “Florida of Southern Europe” and Greeks have been globally in the lead of shipping vessel ownership. In 2019 over 30 million tourists visited Greece, a country that has a population of around 10.5 million. One can imagine the positive direct and indirect impact of tourism and related exports on the thousands of small-to-medium-sized businesses, hotels, transportation, shipping, gift shops, and food services. This is true across the country — especially for the hundreds of beautiful islands that attract tens of millions of international tourists.
However, this high dependence of the Greek economy on tourism and merchant marines becomes a huge problem when the world economy slows down, as happened with the 2020 pandemic’s massive reduction of travel and tourism. The impact was very potent, causing loss of sales, income, business profits, and small business closings, resulting in very high unemployment, job losses, and increased poverty rates.
Worse yet, this blow to the Greek economy was devastating coming not too long after the 2008-16 economic depression that caused the economy to contract by about 25% of national production and income. This was primarily due to austerity policies imposed on Greece by the International Monetary Fund (IMF) and the European Union (EU), to prevent bankruptcy from its excessive debt burden of over 200% of the national income. The EU and the IMF came to the rescue to provide the loans needed to keep the Greek economy afloat but imposed conditions that resulted in significant contractions in Greek Government spending on social programs and retirement payments. Some retirees faced as much as a 40% loss of their benefits. The agreement Greece signed with the EU and IMF required the Greek government to create budget surpluses for the next few decades to reduce the debt burden, among other policies to make the economy more competitive.
It was not until 2017-2019 that the Greek economy finally grew at an average rate of 1.7% (Focus-Economics.com). This rate was positive but was still about half of the rate the Greek economy was growing after it became a full member of the EU in 2000 and at some point was growing faster than all of Europe. Last year, forecasters were predicting a hefty 3-5% economic growth for 2020, due to policies implemented by the new Greek government, headed by Kyriakos Mitsotakis, that were to attract new foreign and domestic investments. There was a lot of optimism for business growth, profitability, and reduction in the unemployment rate which was stuck in the upper teens since 2009.
However, all of that came to an end when COVID-19 forced the Greek Government to implement a severe lockdown in the Spring of 2020 to prevent infections and deaths. Moreover, the closing of the borders reduced tourism revenue by about 75% in comparison to the previous year. This, along with the lockdown, had a negative effect on the overall economy. Even though the government opened the economy to tourism in midsummer, the increased infections by mid-Fall resulted in two additional partial lockdowns creating further damage to the economy in 2020 and carrying into the beginning of 2021.
The 2020 contraction of the Greek economy (estimated at -10%) was truly devastating — forcing the Greek government to introduce economic stimulus measures in tens of billions of Euros (31 billion are grants from the EU to fight the severe economic grand recession). However, like the rest of the world, there is light at the end of the economic tunnel for Greece, partly due to the COVID-19 vaccines expected to inoculate the population by mid-summer and partly due to governmental actions to rescue the economy and move it forwards in 2021.
The EU Economic Forecast for Greece published this past Fall projects positive growth for 2021 and 2022. The OECD, in its December 2020 update, predicts that the economy will start a slow recovery of about +1% in 2021 and have a huge increase of 6.6% in 2022. This would be a boom for businesses and employees that desperately need a full recovery to survive and prosper.
I will go out on a limb and predict even better results in 2021, partly due to pent-up demand for vacations and tourism, if the vaccination of a major component of the world population succeeds. This, in addition to the 2021 planned budget policies (to make strategic public and private investments, reduce the income tax rate, subsidize new hiring by reducing social security taxes and new efforts to digitalize the economy), has the potential to create a much brighter Greek economy in 2021.
This could be a prime time for investing in Greece. The economic conditions and incentives planned could provide some great opportunities for investors in 2021.
Demetrios Giannaros, Ph.D. in Economics – Prof. Giannaros, has taught economics, public policy, and business studies for 35 years at Boston University, Suffolk University and the University of Hartford. He also served for 16 years on the Finance Committee of the CT. House of Representatives. Dr. Giannaros’ s research and opinion columns have been published widely in economic journals and electronic and print media, in addition to interviews on radio and television.