Q3 GDP figures confirm that a recovery is underway, with two consecutive quarters of positive growth for the first time since mid- 2013. Better yet, growth is accelerating, with GDP up 0.8% q/q in Q3, from 0.4% in Q2. This trend still needs to be confirmed for yearend 2016. Given the very favourable base effect1, annualised GDP growth appears to be strong in Q3, up 1.8% year-on-year. Yet other signs also call for caution concerning the solidity of the recovery. Household spending, for example, is sluggish and has only just begun to turn around2. It is still down 0.4% in volume compared to Q4 2014 levels, prior to the latest outbreak of the crisis. Investment spending and export growth are more favourable, up roughly 5% each. Imports have contracted 6% since year-end 2014. This dropoff must be seen in the light of measures to restrict capital outflows, which remain a major obstacle even though they have been eased somewhat. To a certain extent, these controls may have favoured substitutions and stimulated domestic production, but probably to limited proportions3.
The recovery is expected to continue in the months ahead. We are looking for GDP growth of 2.5% this year after 0.6% in 2016. To achieve this, households will have to regain confidence, which is still too feeble, and increase spending (which accounts for nearly 70% of GDP). The pace of job creations has tended to slow in recent quarters, even though it is still fairly rapid with respect to GDP growth. Given the sluggishness of demand, core inflation has been nil or even slightly negative in Greece, but household purchasing power could slump somewhat anyway if the upturn in energy prices is confirmed.
To read the entire report Please click on the pdf File Below
by Frédérique CERISIER