Greece: Boosting firm growth and innovation to raise living standards 

By Antoine Goujard and Timo Leidecker

The Greek economy has weathered recent crises well and GDP growth has outpaced the euro area since early 2021. As headwinds are subsiding, the economy is emerging with significant gains in competitiveness, growing investment and more high-tech exports, and historically low levels of unemployment. Helped by solid growth, inflation and fiscal consolidation, public debt levels dropped significantly, and Greece regained the investment grade rating of its sovereign debt in 2023. GDP growth is expected to continue to outpace the Euro area over the next two years, with real incomes picking up and European funds supporting investment.  

While Greece’s performance has been strong, boosting firm growth and innovation remains a key challenge to support long-term gains in living standards. As highlighted in the  2024 OECD Economic Survey of Greece (OECD, 2024), despite recent improvements, productivity remained 40% below the OECD average in 2023, reflecting performance gaps that are visible in all sectors of the economy. Business investment has declined following the Great Financial Crisis and has just started to rebound in recent years (Figure 1). More than in most other OECD countries, the business sector is dominated by micro and small firms, which often struggle to seize the opportunities of new technologies, innovate and grow. Skill shortages are high and prevent firms from growing and implementing new technologies. This is despite the high -albeit declining- unemployment of 9.8% in October 2024, and reflects the fact that many workers do not have the skills needed by firms. The 2024 OECD Economic Survey of Greece identifies three policy areas where further action could help to strengthen firm growth and innovation.   

Figure 1. Business investment and innovation remains low despite recent progress 

One area with further scope for reforms is to continue removing regulatory burdens. Greece’s regulatory framework has become more business-friendly in recent years, recording the largest improvement in the OECD Product Market Regulation Indicator over 2018-23. However, restrictive regulations persist for professional services and hold back business innovation. Tools to identify and revise burdensome regulations are being applied but have yet to be used to their full potential. Improving the quality and scope of regulatory impact assessments and formalising the review of the stock of existing regulations together with stakeholders would be one way forward. Denmark, for example, does this well with its Business Forum for Better Regulation. In addition, Greece could also minimise regulatory burdens arising from new legislation by implementing its existing rules for quality control and consultations more systematically. Ensuring the effective and timely consultation of stakeholders on new draft legislation is key to continue to improve the business environment.  

Another important avenue will be to make more of the current labour force and improve skills. Better activating youths, women and foreign-born workers, would boost productivity and employment, as would equipping workers with the skills required by rapidly changing technologies. Vocational Education and Training (VET) should be developed further by increasing apprenticeships and the role of employers in the design of curricula. The roll-out of compulsory traineeships in 2024 and the more direct involvement of social partners in the design of vocational training are welcome steps, but there is space to devise a better combination of school and work-based programmes, an area where the success of Germany and Switzerland can provide useful lessons. Policies to support those already in the labour market, so-called “active labour market policies”, are still too much focused on low-effective direct-job creation programmes, and some of that spending could be redirected to training programmes for workers and the unemployed, while regularly assessing and certifying the quality of training providers. Barriers to labour market participation should also be removed, notably by continuing to expand childcare facilities and making it easier to recognise prior learning and skills gained abroad.  

Greek firms could grow stronger by boosting their access to finance. Low business investment, including in research, development and innovation, limits growth prospects, and there are only limited spillovers from foreign direct investment to domestic firms. Greece has made extensive use of loan-guarantee and subsidised lending programmes to improve access to finance, but these programmes should be regularly evaluated to avoid the risks of locking in resources in low-productivity firms and crowding out alternative financing sources. Bank health has improved greatly but non-performing loan exposures remain sizeable in the banking sector and among loan servicing companies. Reducing the length of court procedures, building on the recent bankruptcy law and the 2024 reform of the judicial system, would help restructure non-performing assets. With growing EU and national funding for business innovation and entrepreneurship, regular evaluations will also be key to enhance the effectiveness of public incentives for business innovation.  

Boosting productivity and innovation is not just a short-term priority for Greece—it is fundamental for achieving more sustainable and inclusive growth, especially as Greece’s population ages and the share of those in working age decreases.  

Reference: 
OECD (2024), OECD Economic Surveys: Greece 2024, OECD Publishing, Paris, https://doi.org/10.1787/a35a56b6-en