GIG Economic Bulletin – April 19, 2021

Growth forecasts for 2021 are being toned down slightly, with analysts predicting growth of just over 2%, while the government forecasts 4.2% of GDP. However, 2022 is expected to produce a strong rebound in the order of 6%-7%, while public debt is seen as sustainable in the short term.

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A landmark agreement between the EIB and Greece will see the multilateral lender co-manage up to €5 billion of investments funded through the EU’s Recovery and Resilience Facility, underpinned by Greece 2.0. Analysts are taming expectations for GDP growth in 2021, placing greater emphasis on a strong rebound in 2022. Meanwhile, Greece will welcome travellers on April 19 from the U.S., EU, UK, UAE, Israel, and Serbia.

Macro

HSBC and Deutsche Bank see explosive growth in Greece in 2022 spurred by the RRF investment package. HSBC has lowered its 2020 growth forecast from 3% to 2.2% of GDP, while Deutsche Bank put it at 2%. However, the banks’ analysts forecast 6% and 6.1% growth, respectively, for 2022.

Ratings agency Fitch’s debt sustainability analysis for Greece sees debt dropping to 156.5% of GDP in 2031, with long-term average growth of 1% of GDP once the RRF has been absorbed. This puts long-term debt around 30% above pre-pandemic forecasts, with long-term growth looking fragile.

ESM Chief Economist Rolf Strauch has said that Greek debt is manageable in the short term, as debt restructuring and the low-interest environment have pushed the effective interest rate from 7.3% in 2000 to 1.5% in 2020. At the same time, he calls for a gradual return to fiscal surplus targets for the country to continue enjoying the confidence of the markets and sustain its access to funding.

The OECD’s Going for Growth 2021 report notes Greece’s investment in the health system and in digitalising state functions during the pandemic, but warns that Greece needs to speed up reforms of the regulatory framework and the justice system and close gaps in employment skills which act as a deterrent to investment.

Greece’s seasonally adjusted wages index showed an increase of 4.5% Y-o-Y in Q4 2020, according to the Hellenic Statistical Authority (ELSTAT).

Fiscal

The supplementary budget submitted to Parliament by the Finance Ministry includes a growth forecast of 4.2% GDP for 2021, a small downward revision from the original 4.8%. The projections are based on a strong recovery in the second half of the year, with tourism intakes at 50% of 2019 adding 2-3 percentage points to GDP. The medium-term fiscal strategy, due to be published in the coming weeks, is expected to show an impressive growth forecast of 7% for 2022.

A change in the accounting standards by EUROSTAT will increase the deficit figures for 2020 and 2021. The changes relate to the way clawbacks in the health system are treated and how guarantees are reflected on the fiscal outcome, and will become evident in ELSTAT’s 2017-2020 fiscal benchmarks due out April 22, putting further pressure on the government to rein in spending.

GGBs

The Public Debt Management Agency is planning its next market foray, which will probably involve reopening the recent 10-year issue. It is looking likely that this year’s borrowing will exceed the €12 billion debt issuance enshrined in the current plan, and that it will be front-loaded to the first half of the year to take advantage of low yields, and avoid the congestion due to the expected issuance of the first EU bonds.

EIB

In the first deal of its kind with a member state, the European Investment Bank (EIB) will manage €5 billion of investments funded through the EU’s Recovery and Resilience Facility, as part of Greece’s implementation of the its National Recovery and Resilience Plan, dubbed “Greece 2.0.” This including state projects, private sector investments and SME funding programmes. The arrangement will bring technical, financial and environmental expertise from within the EIB to bear on identifying high-impact opportunities.

Privatisations

COSCO is in talks with privatisation agency HRADF to complete the transfer of 16% of the Piraeus Port Authority by August. The transfer hinges on the completion of investments worth €293 million by COSCO, which are still underway.

The Port of Piraeus is the largest port in the Mediterranean and the fourth largest in Europe, behind Rotterdam, Antwerp and Hamburg. Copyright: Aerial-motion / shutterstock.com

Banks

Analysis by the ECB’s banking supervision mechanism SSM shows that around a quarter of Greek banks’ organic income can be attributed to financial transactions and bond swaps, with commission income making up only a tenth of profitability, the lowest contribution in the eurozone. According to the report, the profitability of Greek banks is held back by the need to hold provisions against bad loans, which added up to €6.1 billion in 2020.

Real Estate

Building permits were up 6.4% Y-o-Y in January following a drop of -0.7% in December, according to figures from ELSTAT. The statistics show that building activity started to resume in recent months, although the second lockdown has slowed recovery, while absolute numbers remain around 80% below the peak of construction activity that was recorded in 2005.

Green Economy

Industrial conglomerate Mytilineos announced plans to raise €500 million through a “green bond”. The bond will have a duration of 5.5 years and will be used to fund renewable and energy storage projects.

Tourism

Greece will be opening its borders on April 19 to visitors from the U.S., EU, UK, UAE, Israel, and Serbia on presentation of a vaccination certificate or negative PCR test. The move will provide a soft launch for the tourist season, due to start on May 14.

Stock Market

The ASE general index continued its upward trend, ending the week up 0.77% at 898.63 points, just short of the 900-point mark.

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