Newsletter Issue 38 | January – February 2021

Shock to tourism sector drives recession

Real GDP dropped by 5.1% in 2020, compared to a forecast of +4.3% at the start of the year, driven by a decline in exports and investment. Services exports dropped by more than 60% as international tourism came to a halt and the crucial associated revenues collapsed. This drove the current account deficit to 9.8% of GDP. Against the backdrop of tax revenue losses and anticyclical spending, the public deficit stood at 9.0% of GDP. This was partially the result of a sizeable fiscal stimulus package. Together, these result in high twin deficits. The projected reduction of these is important for future economic stability. The NBG’s policy rate was cut to 8.0%. However, the role of traditional monetary instruments is limited by their adverse effects on the exchange rate and inflation, the high level of dollarization and the fiscal stimulus. The pandemic underlined the high reliance of the economy on services, especially tourism. A more diversified economy is key for improved shock resilience in the future.

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