For recovery to firm, Greek domestic demand must rise
The Greek economy grew by 2.3% year-on-year in January-March, encouraging hopes of a sustained recovery
Source: Hellenic Statistical Authority (Elstat); Bank of Greece
Outlook
Greece’s economy seems to be on an upward trend, with both year-on-year and quarter-on-quarter growth for five consecutive quarters. Net exports were the driver in the Hellenic Statistical Authority’s provisional estimates on June 4; domestic consumption was flat in January-March; more worryingly, gross capital formation was well down year-on-year and only slightly up quarter-on-quarter.
The breakdown by gross value added gives a more nuanced picture, showing above-average growth in the relatively minor sectors of agriculture and construction, and below-average in the more important industry and services, part of whose output will be for export.
The latest data are encouraging, but to say a corner has been turned would require a pick-up in investment, while consumers are still retrenching.
Impacts
- That goods imports are slightly down year-on-year is a sign of subdued domestic demand.
- Surveys in May show business confidence back to where it was in February but consumer confidence has yet to recover.
- Austerity’s internal deflation may have made Greece more competitive, leading to hopes of an ever-rising GDP contribution from tourism
- A burgeoning recovery as Greece exits its bailout conditions would boost the government for upcoming elections.