Charts of the Week



The Greek economy is recovering relatively quickly from the Covid shock of 2020, judging by the GDP and employment figures released in early September. Real GDP grew 3.4% q/q in Q2 and was 0.6% higher than pre-Covid levels. Since the beginning of the pandemic, Greece has reported the fourth strongest rebound in activity among the 19 Eurozone member countries. Even though household consumption remained fragile in Q2 (+0.9% q/q) due to health restrictions, investment was once again solid (+4.3% q/q).

Employment has also reached levels unseen for the past 10 years. Although these figures are encouraging, they nonetheless fit within a health environment that is still uncertain, with a vaccination rate in the country far below the EU average. More broadly, Greece’s unemployment rate is still very high (15,0%), the size of the economy remains considerably smaller than before the 2008 crisis (nearly 25% smaller), and its banking system is still fragile. This cyclical rebound is nonetheless good news for Prime Minister Kyriakos Mitsotakis, who recently presented a new series of measures aimed at consolidating the recovery. In particular, he announced a permanent cut in the corporate tax rate (from 24% to 22%) and new government subsidies to stimulate the hiring of youth. The government also raised its 2021 growth forecast significantly, from 3.6% to 5.9%.


Following the 12 August presidential election in which opposition leader Hakainde Hichilema defeated incumbent President Edgar Lungo, Zambia’s macroeconomic situation has become clearer thanks to progress towards strengthening relations with the IMF with a long-awaited loan agreement on a financing programme in the coming months.

External liquidity has increased with the new allocation of Special Drawing Rights (SDRs) on 23 August 2021. The allocation amounts to USD 1.3bn, the largest amount behind South Africa, Nigeria and DRC. FX reserves now account for 7% of GDP and cover around 4.7 months of imports, up from 2.5 months before the allocation. Moreover, the current account surplus has grown as a result of an increase in copper prices and weak imports, reducing pressure on overall external financing. Additionally, increased non-resident portfolio investment flows into government securities have provided further FX liquidity, and recently eased the pressure on the local currency (the kwacha has risen by 40% against the dollar since mid-July).

Nevertheless, the financial help of the Fund is critical in order to address the country’s default sustainably. The new president has committed to greater transparency on the amount of public borrowing, which should be higher than official figures since some debt was acquired without parliamentary approval. According to the latest figures provided by the previous government, the total debt stock was already very high at almost 130% of GDP at the end of 2021. Mr. Hichilema also needs to reach a deal as soon as possible with foreign creditors about external debt restructuring, as the country must repay USD 750m worth of eurobonds maturing next year.

On 28 July, the US Federal Reserve (Fed) announced that it would establish a Standing Repo Facility (SRF). Each eligible counterparty* will now be able to borrow, every business day and on an overnight basis, up to USD 120 billion of central-bank liquidity as part of the SRF**. Operations will bear interest at the marginal lending facility rate (25bp) and be capped at USD 500 billion.

The SRF gives the Fed a new tool for detecting possible central-bank money shortages. In September 2019, the system was introduced on an emergency basis and temporarily, and helped to ease the repo markets crisis. However, no such system existed ahead of the shock, when regulatory liquidity constraints, made worse by the reduction in the Fed’s balance sheet, prevented banks from responding to the demand for cash in the money markets. The possibility of converting securities into reserves at any time, without the stigma associated with the discount window, is of limited use in the current context of abundant liquidity but could prompt certain banks to increase their portfolios of Treasuries and Agencies. This could be the case for small banks that, unlike their very large peers, currently hold less securities than they could use considering their SRF limit.

* Primary dealers and, from 1 October 2021, depository institutions with total assets of more than USD 30 billion or with a securities portfolio of over USD 5 billion at 30 June 2021. According to S&P Global Market Intelligence figures, 69 depository institutions could access the facility.

** Through sales of Treasuries, debt securities and MBSs issued by mortgage guarantee agencies to the Fed on a repo basis.

On the Same Theme

Mixed signals 7/7/2021
The Greek economy is proving resilient, with the recovery through to Q1 2021 being faster than in most other Eurozone members. This has been driven primarily by the very significant increase in goods exports. The spread of the Delta variant in Europe represents a threat to the recovery in the tourism sector, which is essential to bolster growth and employment over the coming months. Pending this, the labour market shows continued fragility. The unemployment rate climbed to 16.3% in Q1, whilst the number of inactive workers jumped, partly due to the effect of rising numbers of workers on temporary unemployment. Creating employment and reducing the unemployment rate remains the country’s major challenge, but Greece should continue to benefit in the short and medium term from favourable financing conditions, notably thanks to the support of the ECB.
A slower recovery than other countries in 2021? 12/17/2020
Greece’s economic recovery will be fraught with uncertainty in 2021. The Covid-19 hit to activity could last longer in the tourism industry – a key sector for the country – than in other sectors. The decline in tourist inflows in summer 2020 has limited significantly the rebound in Q3 GDP, which was much weaker than in other European countries. Some confidence indicators, particularly regarding the unemployment outlook, have worsened during the autumn. The conservative government plans to use the large amounts of money allocated by the European recovery fund to finance its stimulus plan, details of which will be finalised early next year. Despite that, public debt is likely to remain above 200% of GDP by the end of 2021, which is very worrying from a long-run perspective.
Will employment hold up in 2021? 12/2/2020
Although the second wave of the epidemic appears to have peaked in mid-November, the economic outlook, particularly for the labour market, is worrying in Greece as it is in other countries. The consumer unemployment expectations index, published by the European Commission, is deteriorating again, and posted in November its worst reading since August 2013. The hard unemployment data from the Greek statistical service are traditionally lagging: the latest data are for August. Despite managing relatively well the epidemic, the Greek economy has taken a sizeable hit due to the steep decline in tourism, a slowdown that could extend beyond the epidemic phase and hold back the recovery in 2021. There is little doubt that the Covid-19 crisis will leave its mark on the labour market, which was already recovering slowly from the sovereign debt crisis. The unemployment rate was still at 16.4% at the end of 2019.   
A risky touristic season 7/15/2020
Despite successfully managing the Covid-19 pandemic, Greece will not avoid a severe recession in 2020. The tourism industry – which accounts for nearly 20% of the country’s GDP – offers no guarantee for a solid recovery. The prospect of a resurgence in contamination in Europe will weigh on the tourism sector in the coming months. The Greek banking system will further weaken, and public debt will rise sharply. That said, the European Central Bank (ECB) has launched the Pandemic Emergency Purchase Programme (PEPP) in March, which allows the ECB to purchase Greek sovereign debt. This has kept a lid on sovereign rates. This difficult context may entice the government to draw a recovery plan that targets strategic sectors less linked to the tourism industry.
The recovery continues 1/24/2020
Supported by catching-up effects, the Greek economy managed to accelerate slightly despite a slowing European environment. Confidence indices have improved strongly and the Greek state has successfully returned to the capital markets. The new centre-right government is seeking to cut taxes on labour and capital without sacrificing fiscal discipline. The recovery will be a long process, but it is on track.
A new majority takes over 7/10/2019
The economic recovery continues. Growth is accelerating and for the moment it has reached the lower range of expectations. After four and a half years in power, Alexis Tsipras passes on the helm to Kyriakos Mitzotakis, leader of the centre-right New Democracy party, which has led in the polls since 2016. The new Prime Minister is unlikely to call into question the prescribed public finance trajectory as the country exits the European financing programme.  
A new step for Greece 10/19/2018
In Athens, it sounds like a fresh start after several long years marked by the adjustment plans and inspection missions

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