Forecasting potential output for Greece

This paper presents a description of the current version of the production function methodology used at the Bank of Greece for assessing and forecasting potential output and the output gap. Medium-term projections are also presented: potential output growth is expected to be 1.9%, supported by Total Factor Productivity (TFP) and capital, while the negative demographics are soon to weigh on the productive capacity of the economy. At the end of the projection horizon, most of the potential output growth accrues from TFP, suggesting the need to continue implementing structural reforms. The paper concludes with a brief discussion regarding the complexities of estimating TFP.