UBS: Bullish for Greek economy and banks – What is the impact of the war

Her Eleftherias Kourtali

UBS raises its forecasts for Greek GDP for 2021 and 2022 to 8.5% and 5.5%, stressing that Greece recorded an impressive economic recovery from the pandemic, with GDP exceeding the level before pandemic since the third quarter of 2021. The economy grew by 2.7% in the third quarter (13.4% per year) after 2.1% in the second quarter of 2021 – the fifth quarter of continuous acceleration (the strongest course over the last 20 years).

Based on the available data for the fourth quarter of 2021, it revises its forecast for GDP for 2021 to 8.5% from 7.9% previously. The growth of 2021, as he points out, was favored by the consumption of households, by a fairly steady increase in fixed investments and the recovery of exports of services (tourism, shipping, etc.). It also raises GDP forecasts for 2022 to 5.5% or 1.5 basis points above market average estimates and 60 basis points above the Commission forecast.

According to the Swiss bank, in 2022 Greece will benefit from EU capital inflows, tourism and sustainable consumption. Its revised forecast for 2022 is also in line with the business climate reaching its highest level since 2000 (guided by industry, services and construction). Growth in 2022 will be boosted by investment (increase in EU capital inflows) and to a lesser extent by consumption gains and some recovery in tourism.

The GDP review is also based on: a) strong statistical transfer (2.7%), b) the start of the tourist season earlier, c) the preliminary approval of the next RRF tranche of € 3.6 billion given the and (d) an increase in household savings (household deposits increased by € 19 billion or about 10% of GDP in 2020-2021) – which could help consumption even in the event of higher inflation.

UBS estimates that Greece will record a large decline in the budget deficit in 2022 and public debt will begin to decline this year. As he notes, Greece recorded a remarkable fiscal outperformance in 2021 with the primary deficit approaching -6% of GDP. The 2022 budget targets a primary deficit of -1.2% of GDP, as measures of only about 1.7% of GDP related to the pandemic will continue this year. The January 2022 budget also started with an oversupply of 1.2 billion euros against the targets. “We expect public debt to fall from 206.3% of GDP in 2020 to 184% of GDP by 2023,” UBS said, adding that Greece would repay the IMF early (€ 1.9 billion left). until the end of March, while it has a particularly high level of cash.

Regarding the risks of Greece on the macroeconomic front from geopolitical developments and exposure to Russia / Ukraine, UBS emphasizes the role of energy. Greece supplies 20% of oil imports from Russia and about 32% of natural gas imports. Rising gas and electricity prices have resulted in electricity and domestic gas prices contributing 2.2% and 0.3% respectively to January inflation (5.5%). Arrivals of Russian tourists accounted for only 0.8% of foreign tourist arrivals in 2021 and Russia accounted for only 0.5% of total Greek exports. At the same time, regarding the other risks, UBS states that they concern another variant of the coronavirus that will affect the restrictions of tourism and mobility and a possible slowdown of the eurozone economy.

Finally, UBS appears positive for Greek banks as well stressing that most of the burden of NPEs was largely removed in 2021. NPEs securitizations and definitive portfolio sales accelerated the removal of banks’ balance sheet risk in 2021, with BoG data showing that the industry’s overall NPE index decreased by half during the second quarter – to 16% in the third quarter of 2021 to 16% (24% decrease from 2019).

With the four systemic banks on track for single-digit NPEs this year and adequate lending capacity following the completion of capital support measures, UBS expects the industry to make a significant contribution to financing the economic recovery. According to him, the banks’ strategic plans depend on substantial net new corporate lending in order to achieve the target of more than 10% in the return on RoTE equity in the medium term.