Alpha Bank: Consumption, investment and energy shock

Alpha Bank talks about a new scenario in the course of the Greek economy in 2022 and the following years as the European Central Bank launches the tightening of its policy in the weekly Bulletin of Economic Developments that it published today.

According to the bank, the announcements of ELSTAT for the economic growth rate of the first quarter and for the inflation of May, in combination with the official entry in an upward cycle of the intervention rates from the ECB, largely reconstruct the scenario for the course of the Greek economy in 2022 and the following years. The new elements that need to be evaluated are the following:

First, the strong inflationary disorder In terms of energy costs, it is now acting in parallel with demand-side inflationary pressures, strengthening the pricing power of companies in a wide range of sectors.

Second, consumer and investment spending maintain the strong momentum they developed after the easing of the restrictive measures (+ 11.6% and + 12.7% on an annual basis, respectively, in the first quarter of 2022), without yet seeing any strong negative impact from the weakening of the purchasing power of households due to higher housing, heating and transportation costs. This item can be attributed to:

(a) the partial use of the savings accumulated by households, which is reflected in the decline in their deposits during the first quarter;

(b) the resilience of the Economic Climate Index, which although fell in March and April due to the war and the ensuing uncertainty in Europe, recovered again in May to 108 points, which is the second highest value among countries of the European Union (EU-27), after Croatia,

(c) the positive impact of the new fiscal measures to support households in response to the energy crisis which, according to the Bruegel Institute (“National policies to shield consumers from rising energy prices”, 13.6.2022) were among the highest in Europe as percentage of GDP,

(d) the continuing strengthening of the employment rate which has increased from 84.3% in February 2020, before the pandemic, to 87.8% in March 2022.

Third, despite the expected weakening of the annual growth ratein constant prices, in the following quarters (as the 7% performance of the first quarter had strong base effects compared to the fall of 1.7%, the corresponding quarter last year, when the lockdown was in effect), the expected GDP growth for year is now significantly higher than the first estimate after the Russian invasion of Ukraine.

Fourth, the rapid increase in investment – public and private – expenditure with the direct support of the funds of the Development and Sustainability Fund and their leverage on the part of the financial sector, combined with the significant increase in travel receipts, will significantly mitigate the effects of higher energy prices on economic activity and the current account balance. . It is worth noting that, according to recent data from the Bank of Greece and the historical data of the World Bank, Greece achieved in 2021 the best foreign direct investment inflow of the last thirty years (2.7% of GDP).

Fifth, the main risks for a possible on-the-spot review of the estimate for the economic growth rate of 2022 concern on the one hand the impact of the expanded yield margins of Greek government bonds (288 bp, on 10.6.2022, compared to 100 bp, in June last year) in an international environment increased uncertainty, on the cost of borrowing and on the other hand the negative effect of maintaining higher energy prices on household disposable income, in terms of purchasing power.

Greece’s GDP growth rate at constant prices in the first quarter of 2022 was higher than the corresponding averages of both the Eurozone (5.4%) and the 27 countries of the European Union (5.6%), while , according to the spring forecasts of the European Commission, the GDP of Greece will grow more than the EU-27 average cumulatively in the two years 2022-2023. The European countries in which GDP grew at the strongest rate in the first quarter of 2022 on an annual basis were Portugal (11.9%), Ireland (11.3%), followed by Slovenia (9.6%) and Poland (9.2%). It is worth noting that the top three countries have relatively low or no dependence on gas and oil imports from Russia, while for Poland 72% of oil imports and 55% of gas imports come from Russia.

Demand Components Analysis: 1st quarter of 2022

According to the recent announcement of ELSTAT, the recovery of economic activity in the first quarter of 2022 in Greece was strong, as real GDP grew by 7% on an annual basis and came from the strengthening of private consumption and secondarily investment. On the contrary, the external sector contributed negatively, as the value of imports was burdened by higher energy prices compared to last year.

The country’s product increased in the first quarter of this year, for the seventh consecutive quarter, on a quarterly basis (2.3%, Chart 1), while, at the same time, private consumption increased by 11.6% on an annual basis, recording the largest positive contribution to GDP growth, amounting to 7.9 percentage points (Graph 2). The retail trade volume index, excluding fuels and lubricants, increased by 7.2% on an annual basis in the first quarter of 2022, while passenger car sales increased. cars recorded an annual increase of 13.8% over the same period. At the same time, the HICP increased by 7.9% on average in the first five months of this year.

Public consumption contributed positively by 0.4 percentage points, as a result of the additional fiscal measures to support households and businesses adopted by the government, which were primarily concerned with tackling rising energy costs.

Investments increased by 12.7% on an annual basis, contributing positively by 1.6 percentage points to GDP change, while the contribution of stocks (including statistical differences) was marginal, reaching 0.2 percentage points. Regarding the analysis of investments by category, investments in housing increased by 18.6%, in other constructions outside homes by 15.9%, in mechanical and technological equipment by 15.4%, while other investments recorded an annual increase of 8%. The biggest positive contributions to the increase in investments were the investments in mechanical and technological equipment (5.5 am) and in constructions outside the residences (3.7 am) (Graph 3). In contrast, investment in transport equipment fell in the first quarter of this year by 2.6% year on year.

It is noted that in April Euro 3.6 billion were disbursed from the Recovery Fund, of which Euro 1.72 billion relate to subsidies and Euro 1.84 billion to loans, while the first disbursements are expected to take place in the near future. of the program by Greek banks. European funds, combined with the new investment they are expected to mobilize, are estimated to result in a significant positive contribution of investment to GDP this year.

Finally, net exports of goods and services had a negative contribution to the change in GDP in the first quarter, by 3.1 percentage points, as the increase in imports of goods and services (by 17.5% on an annual basis) exceeded the increase in the respective exports (by 9.6%). Specifically, imports of goods increased by 17.8%, while exports of goods continued to increase, albeit at a slower pace (2.5%). Exports of services (23%) also recorded a significant increase, with travel receipts increasing by almost 3.5 times in the first quarter of this year, compared to the same period last year. It is noted that, in the first quarter of 2021, travel receipts had decreased by 82% on an annual basis.

Supply Components Analysis: 1st quarter of 2022

In terms of production, services had the largest positive contribution to the annual growth of Gross Value Added (GVA) in the first quarter of 2022, followed by the secondary sector, while the contribution of the primary sector of the economy was marginally negative (Chart 4 ).

More specifically, the contribution of the tertiary sector, which participated by 77% in the formation of the APA, rose, in the first quarter of this year, to 5.4 points, recording an annual increase of 7%. Specifically, the product of the sector “trade-accommodation and catering-transport” increased by 17.8% on an annual basis, contributing 4.2 points to the increase in GVA. In addition, services, excluding trade, tourism and transport, increased by 2.2%, while their contribution to the APA amounted to 1.2 percentage points.

The positive contribution of the secondary sector to the increase in Gross Value Added was also significant (1.3 percentage points) and came primarily from the secondary sector outside construction, ie industry (1 ppm) and, secondarily, from the positive contribution of the constructions (0.3 p.m.). This development is in line with the upward trend of the manufacturing index, which increased by 3.4% on an annual basis in the first four months of 2022. In addition, the expectations for the performance of the sector in the immediate period, as reflected in the development of the Purchasing Managers’ Index, remain positive. Despite the fact that the PMI has deteriorated slightly since the beginning of this year, it remains above 50 points, indicating a significant improvement in the operating conditions of the industry in the near future. Specifically, in May, the PMI rose to 53.8 points from 54.8 points in April.

Finally, the primary sector of the economy, which constitutes less than 4% of GDP, continued to have a marginally negative contribution in the first quarter (-0.2 am), as it fell by 4.2% in annual basis, compared to the first quarter of 2021.

See the full announcement in the right column “Related Files”