Greece in Dire Need of Investments

While momentum is now building with green shoots sprouting in sectors ranging from manufacturing to retail, the key staple of investment is still missing in Greece.

That means that social costs remain high in a country where unemployment is still an eye-watering 21% even after declining for four years. To get that rate down below 20%, Greece will need investments to grow at average rate of 8% for the next few years, according to National Bank of Greece economist Nicholas Magginas, Bloomberg reported.

“You can’t have sustained growth without investment,” said Magginas. “So far the employment pickup has been in labor-intensive, low-skilled sectors like tourism, which don’t improve productivity. But that was the easy part and now it needs to be more capital-intensive.”

Prime Minister Alexis Tsipras has insisted that growing confidence in the country’s stability will open the floodgates on investments, but the evidence of that happening is so far scant. Gross fixed capital formation was stagnant in 2016, and grew just 2.7% in the first half of this year.

Against that, industrial production grew for an eleventh straight month in August and the purchasing mangers’ index for Greek manufacturing hit a nine-year high last month. Even the country’s battered consumers are helping out, with retail sales growing since the start of the year. Yet public spats over a couple of high-profile investment projects have hampered Prime Minister Alexis Tsipras’s efforts to portray the improvements as the dawn of a sustainable economic growth model.

The government was rocked last month when Canada’s Eldorado Gold announced a suspension of mining operations in Greece over a permitting dispute. Its efforts to get a key privatization over the line—the redevelopment of the former Athens airport Hellinikon—has  been slowed by environmental concerns and deliberations over whether the site is archaeologically significant.