EIB: Revised upward forecast for 2022 GDP growth to 4%

For a resilient recovery, despite the intensifying pressures, the National Bank speaks in an analysis of the latest data on GDP, characterizing as “protagonists” the dynamic domestic demand in the first quarter and tourism in the second quarter.

In this context, the EIB’s Directorate of Economic Analysis is proceeding with an upward revision of the forecast for GDP growth in 2022 to 4.0% despite the intensity of the inflation crisis.

In particular, as noted by the EIB, the growth performance of the Greek economy in the first quarter of 2022 exceeded expectations, noting one of the highest GDP growth rates in the euro area of ​​+ 7.0% per year from 8.1% in the 4th quarter of 2021 (5.1% on average in the euro area). GDP showed a significant acceleration on a quarterly basis to + 2.3% from 0.8% in the 4th quarter and + 0.3% of the eurozone average (data adjusted for seasonal effects), with the economy showing resilience in the first quarter. phase of escalating inflationary pressures and the escalation of uncertainty at the end of the 1st quarter since the onset of the crisis in Ukraine.

The data of the 1st quarter underlined the important role that the normalization of conditions in the economy continues to play, and in particular:

(i) the removal of most restrictions on economic activity despite the challenges posed by the Omicron wave earlier this year;

(ii) the further activation of part of the demand that was suspended during the previous two years (which is now channeled mainly for services), with partial use of liquidity reserves (reduction of household deposits by € 0.3 billion in the first quarter), and

(iii) the positive impact of the new fiscal support measures (€ 1.5 billion in the first quarter). Also crucial was the role of rapidly improving labor market conditions, which contributed to demand resilience, in contrast to the weak picture of the consumer confidence index, which declined over the same period due to growing uncertainty.

Indeed, private consumption had the most significant contribution, as it increased by 11.6% on an annual basis (+ 2.5% on a quarterly basis), adding almost 8.0 percentage points to the annual GDP growth. The improvement in labor market conditions was remarkable with the total wage of employees (determined in combination by employment and wages) increasing by 7.4% – the highest rate in the last 14 years.

During the same period, the unemployment rate fell to a 12-year low of 12.2%, while the active population and employment exceeded their pre-pandemic levels (in March 2019) by 43 thousand and 307 thousand people, respectively.

The Financial Analysis Department of the National Bank estimates (see EIB – Greece, Special Issue, 1 June 2022) that labor market conditions will play a key role in sustaining growth momentum in 2022, as employment prospects show signs of further strengthening in the second quarter as tourism recovers, while strong demand and a basic wage increase of 9.7 % will also lead to reasonable wage increases in the private sector.

Gross fixed capital formation strengthened at a strong double-digit rate for the 5th consecutive quarter (+ 12.7% per year, 3.7% on a seasonally adjusted quarterly basis), increasing to 13.3% of GDP and demonstrating confidence in its outlook economy. The share of investment in GDP increased almost to a high of 11-years but remains significantly lower than the average. of the euro area (21.5% on average in both 2021 and the first quarter of 2022). The main pillars for the above increase are the sub-categories “mechanical equipment and weapons systems” which recorded an increase of + 39.0% per year, and residential construction and other constructions with an increase of + 18.6% and 15.9% per year, respectively. The dynamics of business activity is also confirmed by the GDP composition data from the income approach (available at current prices) which show that the gross operating surplus and gross income – corresponding to profits from business and non-business activity – increased by 15.3% per year to a high of 10 years (€ 26 billion) showing remarkable resilience to the rapid increase in production costs.

It is worth noting that nominal GDP grew dramatically by 15% on an annual basis, moving 9.3% higher than its pre-pandemic level in the first quarter of 2019, setting an even more favorable basis for further improvement of the budget data presented as as a percentage of GDP, as well as the strengthening of other figures that show a high correlation with nominal activity, such as turnover and tax revenue data.

The strong dynamics of domestic demand, reflected in the combined contribution of private consumption and gross fixed capital formation by 9.6 percentage points in the first quarter of 2022, offset the negative impact of 3.1 percentage points on GDP change from net exports. In particular, although exports of goods increased by 2.5% year-on-year and exports of services by 23%, adding a combined 3.6 percentage points to GDP growth, their contribution was overshadowed by a negative effect of 6.7 percentage points, due to of the increase of total imports by 17.5% on an annual basis, in the first quarter of 2022. This development confirms the still high dependence of domestic demand on imports, especially in periods of combined consumption boost and investment spending. This negative pressure from the external sector is expected to ease in the coming months, as tourism approaches pre-pandemic levels, boosting export revenue.

The strongest of the initially estimated growth performance in the first quarter of 2022, combined with the encouraging trends in high-frequency business indicators and tourism in the second quarter, reflect a strong upward trend in activity.

Based on the early available data from economic indicators, budget data and mobility indicators for the 2nd quarter and despite the escalating pressure from inflation, the EIB index for estimating GDP at a high frequency predicts annual growth of close to 5% in the 2nd quarter leading to upward revision of estimates for GDP growth to 4% in the whole of 2022, compared to a previous estimate of 3%.