A billboard in Tehran, Iran with an image of Iranian missiles has sparked controversy, adding to the storm clouds gathering over the Greek economy. The challenges facing Greece include demographics, climate change, and a large investment gap with Europe, which continue to overshadow its prospects. However, the external geopolitical tensions are creating a new layer of uncertainty.
The weak growth of Europe’s major economies, which Greece relies on for investment, exports, and tourism, is an additional challenge. There is a real risk of new upward pressures on inflation, making the government’s forecast for growth of 2.9% this year seem ambitious. The external macroeconomic environment remains full of challenges, including increased security uncertainties and the possibility of an escalation of geopolitical tensions in regions like Ukraine and the Middle East.
Spyridoula Tzima, deputy vice president of DBRS Morningstar rating agency notes that an escalation of geopolitical tensions could lead to a rise in commodity prices and put upward pressure on prices. This could delay central banks’ decisions on interest rate cuts and require additional fiscal measures. Global challenges such as monetary policy tightening and domestic events like reduced agricultural activity due to severe flooding have already affected economic activity.
Maddalena Martini from Allianz warns that weak global demand will create new challenges for growth in Greece this year. She expects GDP growth to reach only 1%, as the country has been impacted by a slowdown in its top export markets. However, Oxford Economics economist Paolo Grignani is slightly more optimistic, estimating that growth in Greece could reach 1.7% this year despite weak eurozone growth he believes that Greek economy’s reliance on domestic demand for growth will help drive positive outcomes.