Perspectives

The recovery continues

EcoPerspectives // 1st quarter 2020  
20  
economic-research.bnpparibas.com  
Greece  
The recovery continues  
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.  
Growth accelerates slightly  
1- Growth and inflation  
In 2020, the Greek economy entered its fourth consecutive year of  
recovery. The turnaround now seems to be well underway, although  
the acceleration phase is proving to be more laborious. Activity was  
a bit subdued in early 2019, but strengthened over the summer and  
seems to have struck a more solid pace throughout the second half.  
We estimate last year’s economic growth at about 2.3%, up from  
GDP Growth (%)  
Inflation (%)  
Forecast  
Forecast  
2.3  
2.2  
2.2  
1.9  
1
.4  
1.9% in 2018. The economy was mainly driven by a rebound in  
1.1  
0
.9  
exports of goods and services (+9.5% y/y in volume in Q3 2019)  
and investment (+2% y/y in Q3), while household consumption  
seems to have slumped.  
0
.8  
0
.6  
0
.5  
The most recent economic data and survey results justify a certain  
optimism. Although the manufacturing sector is still lagging, in  
keeping with the European economic cycle, tourism revenues are  
solid, house prices are picking up and the construction sector has  
begun to recover. The rebound in retail sales and new car  
registrations suggests that household consumption strengthened in  
late 2019.  
17  
18  
19  
20  
21  
17  
18  
19  
20  
21  
Source: National accounts, BNP Paribas  
that all of these measures, estimated at 0.6 pp of GDP, will be  
entirely financed by stronger measures to develop electronic  
payments systems and combat VAT fraud, higher municipal and  
property taxes.  
Most importantly, the European Commission surveys reveal a  
strong improvement in household confidence and in the business  
sentiment index at the end of last year, suggesting that domestic  
demand will make a bigger contribution in 2020. The recovery can  
also be seen in job market trends: ongoing job creations are  
obviously a key factor behind the improvement in the household  
situation, as the unemployment rate dropped back to 16.8% of the  
active population in September 2019. All in all, we expect 2020  
growth to hold at roughly the same pace as in 2019, in line with the  
broad scenarios established after Greece exited the third  
adjustment plan.  
The European Commission welcomed this budget proposal and is  
forecasting a fiscal surplus of 1% of GDP in 2020, in line with the  
Greek government, after an expected 1.3% in 2019. Last fall the  
Commission also gave the green light to the launch of a  
securitisation scheme that would enable banks to unload nearly half  
of the non-performing loans that are still encumbering their balance  
1
sheets . Special purpose vehicles (SPVs) set up under the Hercules  
Asset Protection Scheme will buy up the banks’ non-performing  
loans and resell the securitised products to investors. The Greek  
government will guarantee the senior tranches of the securitised  
NPL.  
Bolstered by these conditions and a favourable monetary  
environment, the return of Greek central state on the debt capital  
markets was successful in 2019 with four issues of 5, 7 and 10-year  
bonds totalling EUR 9 bn. Benefiting from a sharp reduction in  
spreads, Greek 10-year rates declined to nearly 1.5% at the end of  
December.  
Political alternation  
As survey results suggested, the centre-right New Democracy party  
won the snap legislative elections in July 2019, with an absolute  
majority in parliament. Prime Minister Kyriakos Mitsotakis did not  
unravel the fiscal package adopted by the previous government in  
spring 2019, right before the elections (0.6pp of GDP in favour of  
households).  
The 2020 budget calls for a series of measures, essentially tax cuts,  
designed to stimulate growth. The plan specifically calls for a cut in  
the corporate tax rate (to 24% from 28%), household income tax  
cuts, measures in favour of families, a decrease in social  
contributions and a cut in the dividend tax. The government claims  
1
Although non-performing loans have declined sharply in recent years, they still  
account for 42% of Greek bank loans outstanding and amounted to EUR 71 billion in  
September 2019.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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