After the 2008 crisis, the Greek economy initiated its recovery in 2017, bouncing back in 2018 with a 1.9% growth rate that was estimated to reach up to 2.3% by 2019. Unemployment – although still high – has edged down from 27.5% in 2013 to around 17.3% in 2019.
While Greece has contained the COVID-19 pandemic effectively, the negative impact on tourism, investment and public finances is a setback to Greece’s longer-term recovery. The impact of the COVID‑19 pandemic on the tourism sector is unprecedented. Tourism has been hard hit, especially in places where the sector supports many jobs and businesses. OECD estimates on the COVID-19 impact point to a 60% decline in international tourism – if recovery starts in July in 2020. This could rise to 75% if recovery is delayed to September and up to 80% if recovery begins in December 2020. Domestic tourism will recoup more quickly but will not be able to fully compensate for the decline in international tourism.
The unique geography of Greece shapes the distribution of population and high concentration of economic activities in urban regions. Compared to other OECD countries with large, sparsely populated regions, relatively more people live in Greece’s rural areas, especially remote ones with rather limited access to cities. The impact of the financial crisis has not been equal across Greek regions. Greece now has the 9th highest level of regional disparities in gross domestic product (GDP) per capita among 30 OECD member countries. The greatest declines in productivity because of the 2008 crisis occurred in remote islands, but also in Western Greece and Attica. The latter, which was contributing to 48% of national GDP and 43% employment by 2017, suffered disproportionally during the crisis, losing around 10% of its total population. Together with Central Macedonia, it experienced over half (58%) of total job losses in Greece. This economic shock was so sharp that “lagging” Greek regions have converged to Attica’s current productivity level – which remains below its potential. This may be considered the “wrong kind” of regional convergence.
OECD estimates show that, at a growth rate of around 2%, Greece would recover to its pre-crisis period level in 15 years. In contrast, if growth in Attica could be restored to 3%, the recovery period in Greece would be halved to around 8 years. Thus, revamping the productivity of Athens is key to fostering Greece’s national growth, especially under the current circumstances of a global slowdown due to COVID‑19. Recovery in Attica, however, should not be isolated. Balanced and widespread growth across all Greek regions is needed. European Union (EU) funds have played an important role during the recovery process and will continue to be crucial in the future. They represent over 80% of Greek public investment and OECD analysis estimates that, between 2009 and 2018, each euro of EU Structural Funds in Greece generated an additional 64 cents of GDP.
Since the global financial crisis, Greece has undertaken an impressive number of nationwide structural reforms (from pension and tax reforms to justice, labour market, public investment, social, energy and environmental policies) as well as decentralisation and regionalisation reforms. The country is now facing additional development priorities from fostering digitalisation, improving entrepreneurial and business ecosystems, and addressing environmental challenges. These new priorities must also tackle existing social challenges and mitigate rising inequalities.
The current COVID-19 outbreak is slowing recovery down and putting the Greek economy at risk again. While the medium- and long-term impacts of the pandemic remain uncertain, the Greek government will need to co-ordinate policy action at the local, regional and national levels in order to minimise job losses and business closures in the immediate and medium terms.