GREEK NATIONAL PRODUCTIVITY BOARD ANNUAL REPORT 2024
National Productivity Board. 2024. | ISSN 2732-9305 (Print) ISSN: 2732-9313 (Online)
The successive crises of recent years, from the COVID-19 pandemic to the conflicts in Ukraine and the Middle East, have significantly strained European economies. Policy measures to improve productivity are considered as vital to promote sustainable development, enhance competitiveness and upgrade the standards of living and doing business. Apart from the international crises, Greece faces long-term vulnerabilities such as high debt and a low employment rate, compared with other European countries. These problems are coupled with additional reform challenges, the cost of the energy transition, the need for workforce upskilling, and frequent and severe natural disasters, such as wildfires and floods. Investments and reforms aimed at enhancing competitiveness and promoting the dual transition while maintaining a prudent fiscal stance are the main way forward.
While many EU countries have entered a period of prolonged stagnation, the 2023 GDP in Greece has expanded by 2%, the seventh highest among the EU, hours worked by 1.7%, employment by 1%, and capital by 0.35%. Consequently, labour productivity per hour worked improved by 0.3%, and labour productivity per person employed improved by 1%. Total factor productivity increased by 2.9% when using hours worked as the labour input and by 3.8% when using employment as the labour input. The majority of per capita growth is attributed to labour utilisation (2.1%), due to the decreasing unemployment and the increasing average hours worked, while labour productivity contributed only by 0.3%, underlying the fact that, since 2008, the role of labour productivity in supporting per capita output has diminished. The negative impact of capital intensity has been only marginally offset by total factor productivity (TFP). This outcome is attributed to the increasing trend in hours worked. However, capital productivity increased by 1.8% in 2023, suggesting that businesses have become more efficient in the use of their resources.
The major driver of GDP growth has been private household consumption. Investment is the second most important factor contributing to growth, while the lower impact of government expenditure is offset by a negative effect of equal magnitude in the balance of trade (goods and services). The current account balance reached -6.3% of GDP in 2023, exhibiting a remarkable improvement of 4 percentage points relative to 2022. In 2023, the Greek balance of services (goods) in 2023 increased by 0.5 (4.4) percentage points to 9.9% (-14.7%) of GDP. In the same year, exports for Greece were 22.6%, while imports were 37.5% of the nominal GDP. This is because increased investment and consumption are closely correlated with more imports, as a direct result of the production structure of the Greek economy, since a significant portion of capital goods required for various industrial purposes is imported.
Compared to 2022, general government net borrowing dropped to 1.6% of GDP, significantly lower than the EU average of 3.5%. Additionally, the primary balance was positive and, overall, fiscal discipline has led to a marked reduction in the debt-to-GDP ratio by more than 10 percentage points in one year, bringing it to an estimated 161.9% of GDP in 2023, and by more than 45 percentage points since 2020. Nonetheless, trade deficits affect the medium- and long-term growth prospects of the Greek economy and may destabilise fiscal indicators, as the current account deficit contributes to twin deficits. At the same time, industrial activities experienced the largest decline in labour productivity (nearly -8%) in 2023 due to significant increases in labour input and decreases in value added.
At the level of metropolitan regions, the functional urban areas (FUAs) of Athens and Thessaloniki experienced the largest labour productivity decline compared to all other EU FUAs (except Groningen) during 2010-2020 (by -23% and -21%, respectively). This outcome stresses the need to deploy place-based policies to harness agglomeration economies and address the shortage of dynamism, twin transition challenges and amplified productivity gaps among the EU regions. Moreover, while productivity gains appear to be disproportionately concentrated among small firms, as large firms are not actively contributing to value creation, the labour productivity of very small firms has been significantly reduced in Greece; this decline reached -20% between 2009-2023 in high-tech and knowledge-intensive SMEs.
Regarding the cost competitiveness of Greece, the Real Effective Exchange Rates (REERs) reached their lowest level in 2023 during the whole period from 2010 to 2023. The nominal unit labour cost (ULC) in Greece recorded the fourth lowest ULC increase among the EU member states, with only Denmark, Malta, and Italy exhibiting lower increases, while the relative ULC decreased by 1.6 percentage points in 2023 compared to 2022, which represents the fifth largest decrease among the EU27 member states. During 2018-2020, Greece’s backward participation has remained above the EU27 average, meaning that Greece depends more on imported inputs in order to produce goods or services that will be exported, compared to the other EU27 country members. This outcome shows the increasing reliance of the Greek economy on foreign markets, particularly in high-productivity sectors, such as manufacturing. Additionally, Greece performs above the EU27 average in all six key dimensions of the Logistics Performance Index (LPI), but the Customs indicator; since 2018, it has improved its scores and rankings in all six key dimensions, suggesting the country’s progress in enhancing its logistics capabilities. In order to further facilitate trade, Greece should emphasise the implementation of cross-border paperless trade, which requires improvements in electronic exchange and the legal recognition of trade-related data and documents across borders.
Greece ranks 25th (just ahead of Bulgaria) among the EU27 (except Malta) in terms of digital competitiveness, which means that it must accelerate the digital transition to significantly converge with the corresponding EU27 average. According to the 2024 IMD edition, Greece’s economic performance as well as government efficiency rank very low, i.e., 52nd among 67 countries and 23rd and 22nd, respectively, within the EU27 (except Malta). These weaknesses, together with the problems in the justice and education systems, deter foreign direct investment (FDI), whose flows are mostly concentrated on the real estate sector, which is not a productive one. Despite the rise in the amount of FDI inflow, the FDI stock is still at levels far enough from the EU27 average.
Specifically with regard to the Greek justice system, it particularly suffers from lengthy procedures, as the estimated time needed to resolve litigious civil, commercial and administrative cases is among the longest in the EU27. Digital acceleration, artificial intelligence applications, electronic case allocation and electronic communication tools are just some of the solutions and reforms which could have a significant impact on boosting the efficiency of the Greek justice system and would help increase its perceived independence.
Regarding the education system, Greece ranks low among the OECD countries at the levels of proficiency and skills in literacy, numeracy and problem-solving in technology-rich environments for adults, while these skills are not as highly rewarded with high wages as in other OECD countries. The already low student performance in Greece was exacerbated during the pandemic, when Greek students essentially lost a full school year in math and reading as well as half a school year in science. Effective remote learning environments, strong school-family partnership, creation of opportunities in the curriculum of students to engage in creative thinking and/or interdisciplinary work, and alignment of the education system and of a highly skilled workforce with industry needs will bolster Greece’s capacity to innovate and compete internationally.