Moody's: “For Greece there is only tourism and inflation”

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In its latest report Moody's Analytics analyzes the reasons why does not improve the rating of the Greek economy, indicating that the only real economic activities in Greece are tourism And… inflation.

When we talk about inflation, then we mean price level and consumptionwhich in turn leads to significant revenue for the Greek state, thanks to the high VAT. These incomes, together with income from tourism, are represented by the Greek government as economic growth. However, both of these factors depend on external circumstances. There is another one that negatively affects the Greek economy – foreign trade deficit.

In other words, the country does not produce anything, but simply… consumes, and everyone exchanges services with each other. Moody's predicts a very difficult two years for the Greek economy due to tariffs it will impose on goods from EU D. Trump, to which Brussels will probably respond with similar tariffs.

The Greek economy depends on consumption and trade

Moody's notes that the Greek economy is performing well with real GDP increasing by 2.4% year-on-year in the third quarter of 2024, but the main drivers of Greek growth were consumption and tourism. Net export performance continued to weigh on growth as import growth significantly outpaced export growth, especially in services.

Although the unemployment rate is at its lowest level in recent years 15 yearsthis does not hide the fact that Greece still has the second-highest unemployment rate in the eurozone after Spain and faces several risks, such as increased US tariffs on goods from the European Union and political instability in Germany and France.

According to Moody's, Greece stands out as one of Europe's leading tourist destinations, with almost 10% workforce is employed in tourism services, and about one more thirds of exports comes from this sector.

However, despite the strong post-pandemic results, national statistics for the second half of 2024 show signs of weakness. Average travel expenses from January to October decreased by 4.3% compared to the same period in 2023. This may indicate that tourists have exhausted savings accumulated during the COVID-19 period.

However, as Moody's emphasizes, despite the recent weakening, the tourism industry engine continues to attract real estate investors, which is why housing prices are rising rapidly.

From January to September 2024 quantity issued construction permits increased by 20% compared to the same period in 2023. However, the number of permits remains approximately 55% lowerhow before the global financial crisis.

Data shows supply cannot meet demand

Housing prices have increased for more 14.2% in 2023 and are expected to increase by 7.7% in 2024. This is in stark contrast to the eurozone, where prices have fallen by 1.2% in 2023 and are expected to grow by just 1.2% this year. “We forecast that house price growth in Greece will slow below 6% this year, but will continue to exceed the eurozone average,” – Moody's notes.

The share of permanent investment in GDP is now 16%compared to low levels 10.1%% in the third quarter of 2015. However, this figure remains below the level before the 2008 crisis, which was about 21%and lower than in countries such as Spain and Italy.

One of the reasons why the share of investment in GDP cannot recover is that Greek systemic banks keep interest rates on deposits at zero. This means that the population does not want to keep money in bank deposit accounts, which makes bank savings unattractive for the average household.

It also slows capital formation and the flow of new loans, although competition between banks could lead to higher deposit rates after the merger Attica Bank With Παγκρήτια Τράπεζα (Pankritian Bank).

“The challenge for policymakers is to ensure that reforms also benefit the wider public.”

Study of living conditions Eurostat life satisfaction in Europe in 2022 was alarming. Greek university graduates said they were very dissatisfied with their financial situation (second only to Bulgaria in terms of dissatisfaction).

However, since then, minimum wages have increased significantly and are now comparable to those in Portugal and Malta. The largest difference between minimum wage income and unemployment benefits improved incentives to actively seek work. Despite the progress made, average adjusted full-time wages in Greece in 2023 were the third lowest in the European Union.

High housing prices and overtourism make it difficult for young people and families to rent or buy property, leading to outflow of the young population from the country.

An era full of risks

According to the rating agency:“The Greek economy is vulnerable to fluctuations in global markets. The high level of geopolitical instability caused by the situation in Ukraine, the Middle East, friction between China and Taiwan, the US-China trade war, and also, more importantly, political instability in Germany and France, creates significant uncertainty.”

Following the re-election of President Donald Trump, Moody's Analytics predicts that the effective US tariff rate on EU goods will increase by 5 percentage points.

“The EU is likely to respond with similar tariffs, but excluding energy imports. The tariffs are expected to come into force in July 2025 and will remain in effect until the end of 2026. We estimate that the deterioration in the global macroeconomic situation that will arise will have a negative impact on the growth of the Greek economy, mainly in 2026.

A consumption-based economy heavily dependent on international trade, escalating global trade tensions could easily undermine economic growth. We have lowered our GDP growth forecasts to 2.2% (With 2.3%) for 2025 and up 1.6% (With 2%) for 2026.

EU retaliation against US tariffs could also increase pressure on inflation. It should be noted Eurostat reports that inflation in Greece is around 3% since July, which is above the eurozone average.

Food inflation is expected to remain at just 0.6% in the fourth quarter of 2024. However, service sector inflation remains high, exceeding 5%and is expected to keep headline inflation high at 2.8% in 2025, putting further pressure on real disposable income.”notes Moody's.

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