HSBC: Growth in Greece at 4% this year, inflation at 6.5%

Of Eleftheria Kourtali

HSBC reduces its estimate for the growth of Greece this year to 4% from 4.5% before and to 6.5% increases its estimate for inflation, from 2.4% before, due to the effects of inflation and energy shock in the economy, in the context of the wider deterioration of growth forecasts in all the countries of Europe in which it is moving forward.

For 2023, it places the growth of the Greek GDP at 4%, stable in relation to its previous forecast, while the inflation is now placed at 2% from the 1.3% that HSBC had predicted three months ago.

According to the British bank in its new report, for the prospects of the second quarter in Europe, another huge supply shock hit the economies of the region.

Just as production was recovering from an unprecedented shock, another – potentially longer and longer lasting – supply shock has hit Europe.

Energy prices, which had already risen sharply last year, soared after the Russian invasion of Ukraine – a particular problem for Europe, given high levels of energy imports and dependence on Russia.

As a result, business expectations and consumer confidence, which had already fallen in some countries due to rising inflation, have plummeted. In March, consumer confidence in the eurozone marked its second-largest monthly decline since 1985, which HSBC said was not surprising given the squeezing of real incomes and the war in Ukraine.

High inflation

Rising energy costs have already sent inflation soaring, with HSBC expecting eurozone inflation to remain above 7% by mid-year and averaging 6.5% in 2022 (up from 2.9 % expected three months ago). He believes inflation in the UK could peak at 8.4% in April and remain above 8% until November.

At the same time, HSBC estimates that inflationary pressures on real household incomes are likely to be higher in the United Kingdom than in the euro area, reflecting higher inflation and lower financial compensation. It expects real income in the UK to fall by around 4% this year, compared to 1.25% in the eurozone. In the eurozone, inflation pressure alone will be enough to send GDP more than 1% lower by the end of 2023 than HSBC had predicted three months ago. Thus, he estimates that growth in the eurozone this year will move to 2.6% from 3.8% before, and in 2023 to 1.8% from 2.2% before.

He warns that the blow to GDP could be even greater. Geopolitical and macroeconomic uncertainty has increased and in times of high uncertainty, companies may postpone investment and recruitment decisions, which can be costly to reverse. At the same time, households are likely to increase their savings. According to HSBC, higher uncertainty could reduce GDP by a further 0.6%.

Fiscal transfers may alleviate some but not all pressures. The squeezing of household income from inflation will be partially offset by the additional fiscal support measures announced by governments this year. In the euro area, HSBC estimates that current and future transfers will amount to around 1% of GDP this year, boosting GDP by 0.2% (with the biggest boost in the second-fourth quarter of 2022).

Stagnant inflation?

As HSBC points out, given the magnitude of the inflation shock and the geopolitical uncertainty, growth forecasts may seem a bit optimistic. However, it should be borne in mind that a strong recovery from the pandemic in 2021 provides a good foundation for 2022. Strong labor markets in the first quarter will bring momentum in the second quarter and the removal of most restrictions for COVID-19 could also provide support. Then there is the huge amount of savings that have accumulated in the midst of the pandemic, which will help some households to ease spending pressures.

However, as he states, the risk of stagnant inflation in Europe is much discussed. The risks are clear, and if the conflict escalates or lasts too long – pushing energy prices to record lows in March – inflation in the eurozone could rise to more than 8%.

Greater income squeezing and uncertainty in this scenario would be enough to push the eurozone into recession, while unemployment will rise. And with some countries already preparing for energy shortages, GDP will also be hit by declining energy supplies. This scenario is clearly a stagnant inflation scenario, he emphasizes.