HSBC: Growth forecast for growth in Greece at 8.8% this year

Her Eleftherias Kourtali

The Greek economy continues with very strong steps, says HSBC in today’s report, where it proceeds to a new upgrade of its assessment of growth this year, placing it at 8.8% from 7.5% that had “raised” it in October , while at 4.5% (from 5% before) it sees growth in 2022 and at 4% in 2023.

In the current fourth quarter, it estimates that growth will move to 8.4%, while in the first quarter of 2022 it will move to 4.2%, in the second quarter to 4.5%, in the third quarter to 4.1 % and the last quarter of next year at 5.2%

As Fabio Balboni, a British bank economist, points out, Greece continued its steady recovery in the third quarter, with GDP growing by 2.7% on a quarterly basis, the fifth consecutive quarterly growth rate of more than 2%. By the third quarter, GDP was 1.2% higher than pre-crisis levels – an impressive achievement given the dependence of growth on tourism (in 2019 the sector accounted for 10% of GDP in foreign receipts and 20%). % taking into account the secondary effects on domestic consumption and investment, which decreased to just 8.7% in 2020). Foreign tourism, however, began to recover at the end of the summer, which probably contributed to the strong export performance (+ 12.6% on a quarterly basis). Household consumption (+ 1.1% in the quarter) and investment (+ 3.9%) also performed well. Investment is already 20% higher than pre-crisis levels, although it remains relatively low overall (-40% compared to 2010).

The strong growth dynamics is likely to have continued in the last quarter of 2021. The Economic Climate Index (ESI) has risen to the highest level (at the same level as in February last year) since Greece joined the eurozone. And the latest data for the PMI index show steady growth in the Greek manufacturing sector in November, with the index at 58.8, just 0.1 points below October. This level is slightly lower than the multi-year high of 59.3 points achieved in August, despite long delays in deliveries to suppliers and rising production costs.

However, as HSBC points out, the consumer sector is showing some signs of slowing down. Consumer confidence declined after the summer and retail sales declined as COVID-19 cases increased, leading the government to reintroduce some restrictions. The recent sharp rise in inflation (4.0% year-on-year in November, the highest level in more than 10 years) has led to an increase in electricity bills by almost 40% and could affect household disposable income.

The Omicron variant and possible new restrictions could also affect year-end consumption, the British bank added. With the share of the vaccinated population hovering around 65% – one of the lowest in the EU – Greece could be exposed to a rapid increase in infections. Consumption, however, will continue to be supported by the decline in unemployment (to 12.9% in October, the lowest in 11 years) and the increase in employment by almost 200 thousand (5% of the total), compared to before from the pandemic. Retail bank deposits have risen by € 15 billion (almost 15% and over 8% of GDP) from pre-pandemic levels, so household surplus savings should provide a safe haven.

For all the above reasons, HSBC revises its GDP growth forecast to 8.8% for 2021 (from 7.5%) and slightly reduces it for 2022 (4.5% from 5, 0%) while leaving the estimate for 2023 unchanged at 4.0%.

The budget

At the same time, HSBC reports that Greece’s budget deficit and debt soared in 2020 (to 10.1% and 206.3% of GDP, respectively). So far in 2021, despite the strong recovery, the deficit has remained broadly stable, in part due to firefighting measures (0.3% of GDP) and measures to offset the effects of the spike in energy prices.

The 2022 budget includes additional stimulus measures of 2.2 billion euros (or 1.2% of GDP). As COVID-19-related relief measures are expected to fall from € 15.8 billion in 2021 to € 3.3 billion in 2022, HSBC estimates that the deficit will shrink from 9.8% of GDP to 4 , 7% in 2022. However, as he states, there is a risk of a larger-than-expected deficit, which may arise from the possible activation of state guarantees related to COVID and the pending decision of the Council of State on retroactive compensation for cuts in supplementary pensions.

The government also intends to use 1.7% of GDP of the “grants” of the Recovery Fund and 0.9% of the GDP of loans in 2022. Greece will receive 31 billion euros from the NGEU by 2026, which the government believes it could increase GDP by 7% by then. Meanwhile, the privatization plan is moving forward again after the slowdown due to the pandemic, at a time when the 2022 budget assumes revenues of 2.2 billion euros from privatizations (of which 1.5 billion euros from Egnatia Odos) .

The “wall” of protection of the ECB

Finally, HSBC refers to the recent ECB decisions on Greece. As he points out, Greece was included in the ECB PEPP while it also received a waiver for the eligibility of Greek bonds as a guarantee in the monetary financing operations of the central bank. With PEPP ending in March 2022, the ECB has given Greece another exception, allowing it to be part of PEPP’s most flexible reinvestment by the end of 2024. Although there are still some uncertainties about how which this flexibility will be applied in practice, this shows the strong commitment of the European authorities not to leave Greece during the recovery phase from the crisis, which may well be enough to protect it until it regains the investment grade.