Bank of Greece SWOT Analysis

Greece's macroeconomic fundamentals have seen a notable strengthening. The country achieved a general government budget surplus in 2024, a significant fiscal achievement. Furthermore, Greece recorded the largest public debt reduction within the European Union during the same period.

This robust economic performance is expected to continue, with GDP growth projected to outpace the euro area average for the years 2025 through 2027. Such sustained growth creates a more favorable operating environment for the Bank of Greece.

These positive developments reflect a renewed sense of confidence in the Greek economy, bolstered by consistent fiscal discipline and economic expansion.

The Bank of Greece benefits from its integral role within the Eurosystem, leveraging shared expertise and a unified monetary policy. This affiliation, coupled with Greece's improving macroeconomic fundamentals, including a 2024 budget surplus and significant public debt reduction, provides a stable and supportive operating environment. The Greek banking sector's enhanced resilience, marked by improved capital adequacy and a declining NPL ratio below 5% by mid-2025, further strengthens the Bank's position.

Greece's economic growth trajectory, particularly its investment-driven expansion, is heavily reliant on the successful deployment of funds from the European Union's Recovery and Resilience Facility (RRF). For instance, the RRF is a cornerstone of Greece's "Greece 2.0" national recovery plan, with a significant portion of its projected €30.5 billion allocation expected to fuel public and private investments through 2026.

Any setbacks in the absorption or efficient use of these substantial EU financial resources could directly hinder the projected investment growth rates and, consequently, the overall pace of economic recovery. This dependence creates a potential vulnerability, where delays in fund utilization could act as a constraint on the nation's economic momentum.

The Bank of Greece faces challenges related to the slow implementation of structural reforms, particularly in the judicial system and public administration. This sluggishness can negatively impact the business environment and investor confidence. For example, in 2024, persistent judicial backlogs continued to affect contract enforcement, a key area for institutional credibility.

Delays in reform execution hinder the overall economic recovery and the attraction of foreign direct investment. While digitalization efforts were underway in 2024, their full impact on bureaucratic efficiency is still developing, creating uncertainty for businesses.

The Bank of Greece's own assessments from late 2024 and early 2025 highlight the need for a more dynamic reform approach. Predictability in legal and regulatory frameworks is crucial for attracting capital and fostering long-term growth, but weaknesses in reform pace can increase perceived risks.

The Greek economy's reliance on EU RRF funds for investment-driven growth presents a vulnerability. Setbacks in the absorption or efficient use of these funds, projected to be a significant driver through 2026, could directly impede economic recovery momentum.

Greece's economic growth through 2025 and 2026 is expected to be significantly fueled by investments, especially those benefiting from European Union funding. The Bank of Greece can seize this opportunity by actively supporting and directing these capital flows.

By fostering efficient financial intermediation and cultivating a supportive environment for investors, the Bank can play a crucial role in bridging Greece's investment deficit. This proactive approach will directly contribute to bolstering the nation's overall productive capacity and economic resilience.

The Bank of Greece can leverage the substantial EU funding, particularly the €723.8 billion Recovery and Resilience Facility (RRF) for 2021-2026, to drive sustainable growth in key sectors like green and digital transitions. By promoting investments in renewables and digital infrastructure, the bank can foster innovation and boost economic competitiveness, aligning with EU goals like those of the InvestEU program.

The euro's increasing attractiveness as a secure investment, with significant net inflows into long-term bonds observed throughout 2024, offers an opportunity for the Bank of Greece to enhance the euro's global standing and attract foreign investment into Greece. This trend, with €1.5 trillion in net inflows into euro-denominated bonds in 2024, underscores growing market confidence in the currency's stability.

Ongoing Greek government reforms, including digital transformation initiatives and efforts to streamline bureaucracy, are creating a more favorable business environment. The Bank of Greece can support these reforms, contributing to increased productivity and attracting both domestic and foreign direct investment, as evidenced by the €7.1 billion in FDI inflows in 2023.

The Bank has a crucial role in championing investments in human capital and innovation to address long-term productivity challenges. By supporting education, research, and partnerships between academia and industry, the bank can foster a higher value-added economy, building on initiatives like Horizon Europe, which saw Greek entities secure over €200 million in funding in 2023.

Despite headline inflation easing, a significant risk lies in the persistence of core inflation, particularly within the services sector. This stickiness, potentially exacerbated by ongoing wage pressures, could delay the return to price stability.

Should core inflation remain elevated above the Eurosystem's targets, it may compel a more extended period of restrictive monetary policy. This prolonged tightening could dampen economic activity and investment within Greece, impacting growth prospects.

Escalating climate change poses a significant threat, with increasing natural disasters like heatwaves and floods causing substantial economic damage and straining public finances. For example, Greece's GDP growth projections for 2024, initially around 2.5%, could be negatively impacted by these climate-related disruptions, which also threaten supply chains and tourism, a key export sector.

A persistent risk is core inflation, particularly in services, potentially driven by wage pressures. If this inflation remains above target, it could necessitate prolonged restrictive monetary policy, dampening economic activity and investment in Greece, thereby hindering growth prospects.

Global financial market turmoil, especially concerning US federal bonds, can spill over into Greek markets, affecting investor sentiment and asset values. This volatility can also increase borrowing costs for both the Greek government and businesses, making financing more expensive.

Geopolitical instability and rising protectionism globally present threats by potentially reducing international demand for Greek exports and deterring foreign direct investment, which was around €5 billion in 2023. Such uncertainties could make investors more hesitant, impacting job creation.