Greece’s recovery from its economic tragedy is still waiting for its last act.
While momentum is now building with green shoots sprouting in sectors ranging from manufacturing to retail, the key staple of investment is still missing.
That means that social costs remain high in a country where unemployment is still an eye-watering 21 percent even after declining for four years. To get that rate down below 20 percent, Greece will need investments to grow at average rate of 8 percent for the next few years, according to National Bank of Greece economist Nicholas Magginas.
"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 percent 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 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.
“Investment is the growth component most susceptible to uncertainty,” said Magginas. “There’s a lot of deferred investments from 2015 and 2016 in the pipeline that can give a rebound. The hard part is sustaining it.”