From Almost Leaving the Eurozone to Becoming an Outperformer, Greece’s Prospects Look Bright

By Maria Martinez 

Greece was on the brink of bankruptcy and close to leaving the euro after the 2008-09 financial crisis, but following the turmoil caused by Covid-19, it has become an outperformer in the eurozone, aided in particular by tourism and low exposure to the war in Ukraine.

“Greece has already made a more complete recovery from the pandemic than most of its peers,” Andrew Kenningham, chief Europe economist at Capital Economics, told The Wall Street Journal.

Greece has consistently outperformed the eurozone average, with first-quarter real gross domestic product surpassing the prepandemic level of 4Q 2019 by 3.0%, which compares with 0.8% for the eurozone, according to Citi’s estimates.

“Greece’s economy is doing remarkably well overall and the short-run prospects still look pretty bright,” Mr. Kenningham says. This is because the country is less exposed to risks stemming from the Russia-Ukraine conflict than many, while surging tourism revenues should lift GDP growth to 5.5% this year, the economist says.

Greece’s manufacturing sector, while small, is also doing reasonably well, Mr. Kenningham says. He explains that output was 10% above its prepandemic level in March this year and the manufacturing PMI suggests that, although growth has slowed, output is still expanding, he says.

While Greece hasn’t escaped inflation, which came in at 10.7% in May, Mr. Kenningham expects the impact to be cushioned by this year’s 9% minimum-wage increase.

The expectation of a strong recovery in the tourism sector, coupled with the divergence between resilient services activity and a weaker industrial sector, means Southern European economies will outperform the rest of the continent this year, Angel Talavera, head of Europe economics at Oxford Economics, says in a research note.

Contrary to conventional wisdom, the outperformance of peripheral economies doesn’t reflect a catch-up from the Covid-19 crisis but the strength of the tourism sector in these countries, the economist says. Traditional tourism powerhouses such as Spain, Greece and Portugal will be among the fastest-growing eurozone economies, based on Oxford Economics’s forecasts.

Another factor in the outperformance is the prospect of a large increase in government investment this year due to the deployment of funds under the Next Generation EU recovery program, Mr. Talavera says.

NextGenEU grants of 9% of annual GDP will support public investment and growth in Greece over the next four years, economists at Citi say in a note.

“Greece looks like the clear relative winner of these funds,” Mr. Talavera says.

Write to Maria Martinez at