UBS: Positive for Greece despite the challenges in the economy

Of Eleftheria Kourtali

UBS reduced its growth forecast for Greece to 4.0% from 5.5% previously this year, as it acknowledges, as it points out, the opposite winds that the economy is facing due to the effects of the war in Ukraine. , with the bank, however, maintaining its constructive stance on the country’s prospects due to four factors.

This downgrade mainly reflects four forces, as it notes: a) the smallest growth shift since 2021, b) the downward revision of Eurozone growth to 2.9% in 2022, c) the fact that high-frequency data implies a softer start for the first quarter of 2022 and d) the fact that inflation is becoming a bigger obstacle to growth.

However, its new forecast for Greek GDP remains above the recent official forecasts of 3.5-3.8% (IMF, Bank of Greece) and the consent of analysts (3.2%). The key risks in these forecasts are higher commodity / energy prices and a further blow to growth and confidence in the Eurozone.

Three opposite winds for growth

More specifically, UBS identifies three main obstacles to the development of the Greek economy.

First, the GDP growth rate fell significantly to + 0.4% on a quarterly basis in successive terms in the fourth quarter of 2021 with downward revisions in the third and second quarters. The slower growth reflected the weakness in the construction sector and in several services and could also be related to the stricter mobility restrictions in the fourth quarter of 2021. This reduced the “transfer” in 2022 to 1.6%.

Second, in consecutive terms all three high-frequency indices monitored by UBS shrank in the first quarter compared to the fourth quarter of 2021: industry (-3.2% on a quarterly basis), retail sales (-1.1%) and car rankings (- 1.7%). However, there is no high frequency data for many services, where the business climate has further improved. This makes it possible that first-quarter GDP growth could also be modest, he points out.

Third, Greece’s harmonized inflation rose to 8.0% per annum in March, the highest rate since 1996. Thus, it almost doubled in three months from 4.4% per annum in December 2021. Over 40% of its growth January-March inflation is explained by the housing component (including electricity and gas bills), while another 40% is explained by the jump in food inflation (8.2% per year) and rising hotel prices and restaurants (5.2% per year).

Four factors that support the still optimistic macroeconomic view

UBS also points out four factors that support its positive attitude towards the Greek economy, despite the current challenges.

First, both population mobility and economic activity data show visible improvements in January-April 2022, while business confidence in the first quarter reached its best measure since 2000, aided by the climate in industry. , services and constructions.

Second, improvements in the labor market remained unchanged in January-February and the increase in the minimum wage is expected to help boost household incomes. In addition, households have some safety cushions (increase in deposits) to deal with higher inflation and the government has also mobilized new resources to support them.

Third, capital inflows from the EU will continue to be a key factor this year, with around € 16 billion or 8% of GDP available for absorption.

Fourth, tourism revenues continued to perform very well in January-February (revenues increased by 300%) while the start of the tourist season earlier (March 1st) and the easing of mobility restrictions between May-August are expected to allow the industry to record strong gains again.