Economic uncertainty accounted for as much as one-third of Greece's investment gap with the European Union and as much as 40% of the country's employment losses during the worst years of its sovereign debt crisis, according to a new study by the Foundation for Economic and Industrial Research (IOBE), one of Greece's economic think tanks.
The findings underscore the lasting economic cost of uncertainty itself, beyond the effects of recession or fiscal tightening. The study concludes that prolonged uncertainty discouraged businesses from investing and hiring, with the impact persisting for more than a year after shocks occurred.
Published with the support of the Bank of Greece, the research introduces new indicators designed to measure uncertainty in the Greek economy using business survey data. Rather than relying solely on financial market volatility, the researchers track how widely firms' expectations diverge, how inaccurate their forecasts prove to be over time, and how difficult businesses themselves say it is to predict future growth.
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The results suggest that uncertainty was a major drag on Greece's recovery during the debt crisis. Between 2009 and 2015, roughly one-third of the country's investment shortfall relative to the EU can be attributed to elevated uncertainty. During 2010-2013, when unemployment surged, uncertainty may have been responsible for up to 40% of the decline in employment.
According to the estimates, a one-standard-deviation increase in uncertainty reduces investment by approximately €200 million almost immediately, with the effect lasting for around two years. Employment also declines significantly, with the largest impact emerging about three quarters after the initial shock.
The study finds that not all sectors or companies are affected equally. Services and manufacturing appear particularly sensitive to rising uncertainty. In manufacturing alone, the spike in uncertainty during the early years of the Greek crisis is estimated to have reduced investment by roughly €500 million over two years, accounting for about one-quarter of the sector's overall investment decline during that period.
The burden also falls disproportionately on smaller businesses. Very small firms consistently report higher levels of uncertainty than medium-sized and large companies. The analysis suggests that uncertainty significantly reduces investment among small and medium-sized enterprises, while its effect on larger firms is far less pronounced. Researchers argue this may help explain why uncertainty acts as a barrier to business expansion and competition, limiting the ability of smaller firms to grow.
Business expectations also shape how firms respond. Companies with pessimistic or neutral outlooks are much more likely to postpone investment when uncertainty rises, whereas firms with optimistic expectations appear considerably less affected. A similar asymmetry is observed in hiring decisions, with employment proving more vulnerable when business sentiment is already negative.
The study places Greece's experience within a broader lesson for policymakers. Economic uncertainty is increasingly recognized as an independent force capable of suppressing investment, household spending and employment, ultimately weighing on income growth and social cohesion. The researchers argue that systematically measuring uncertainty can provide an early warning signal for policymakers, allowing governments to respond before deteriorating confidence translates into weaker investment and job creation.
