GIG Economic Bulletin – August 17

Greece plans to capitalise on record low yields with an early bond issue in the autumn while banks are moving ahead with their NPL securitisation plans. With the 85th Thessaloniki International Trade Fair cancelled this year due to COVID-19, Greece and honoured country Germany are vowing to push forward with trade deals and virtual events.

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The yield on 10-year GGBs falls below 1%, accompanied by record lows across the yield curve. The Thessaloniki International Fair, the country’s largest yearly international trade event, is suspended amid growing concerns of a new swell of confirmed COVID-19 throughout Europe. Meanwhile, deals inked for a value of €75 million signal the upturn of the commercial real estate market, while Greece’s Piraeus port is ranked by UNCTAD among the world’s best connected.

Macro

Greek exports excluding oil products rose by 6.5% in June to reach €2.05 million, and the trade deficit was reduced by 10.3%, in the country’s ongoing effort towards a more viable economic model. However, including oil products, exports were down -8.5%, for a total sum of €2.55 billion. Imports dropped substantially in June by 9.2%.

Fiscal

Pandemic support measures have resulted in a €9.6 billion shortfall at the end of July, up by €3 billion from the January-June period. Revenues undershot expectations by €3.5 billion, while spending was €4.5 billion over budget, bringing the budget deficit to a total of €8.2 billion. However, with EU fiscal rules suspended for 2020 – and possibly 2021 – due to the pandemic, Greece will not be expected to hit a 3.5% primary surplus target.

COVID-19

The government has decided to cancel the 85th Thessaloniki International Trade Fair, due to take place in September, because of concerns over the course of the pandemic across Europe. However, Greece and honoured country Germany remain committed to concluding a number of investment deals linked to the event, while organisers are working on a revised schedule combining virtual and physical engagements later in the autumn and into the spring of 2021.

The government is said to be lining up an additional package of COVID-19 support measures for the autumn, targeting individuals and business sectors most severely impacted by the pandemic. Contract suspensions and employment support have been extended to seasonal hires in the tourism sector, offering relief to businesses and workers through August and September.

Additional healthcare measures have been introduced in a number of tourist resorts and across different areas of the country – including the greater Athens area – after Greece recorded a daily record of 262 cases on August 12, including curfews on bars and restaurants, limits on gatherings, and compulsory mask wearing.

GGBs

The PDMA is said to be considering bringing forward its plans for new debt issues from October to September to take advantage of record-low yields. The plan was to open the book for an existing 5-year bond and draw up to €1.5 billion, in order to replenish cash reserves and signal that even in adverse conditions Greece can maintain market access. The 5-year note currently trades with a 0.24% yield and it is estimated that should Greece choose to open a book it could draw €2 billion for less than 0.5%.

The benchmark 10-year yield dropped to below 1% for the first time in six months, signalling a vote of confidence from the investment community and a positive indication of the medium-term prospects of the economy overall. This is reflected across the yield curve with record low yields for the 5-, 7- and 15-year benchmarks, while during the previous week Greece issued T-bills with a negative yield.

Tourism

Performance expectations for this year’s tourism season have been downgraded from the initial forecast of 20-25% of last year’s €18.5 billion of travel receipts to a maximum of €3.5 billion, which is below 20%. The €15-billion shortfall in travel receipts represents an estimated 7.5% of GDP, which is in line with the adverse scenarios for 2020 economic growth.

Cruise operator MSC Cruises has announced that it will start cruises to Greek destinations on August 22, while TUI and Costa are said to be considering following suit. Cruise liners will be operating at 70% capacity and enhanced hygiene protocols will apply onboard as well as at ports.

Retail

Supermarkets continued their upward trend in the first seven months of 2020, recording 11% sales growth despite the lockdown according to figures from IRI research. Expectations for the third quarter are cautious, as the fall in tourism is expected to hit summer sales, particularly in resort locations.

Real estate

A series of major property deals struck in the past week with a combined value of close to €75 million hint at a revival of the commercial real estate market in and around Athens. Trastor, PASAL and BriQ Properties have agreed to acquisitions in the Aspropyrgos logistics zone, while PRODEA Investments has picked up two office buildings in Athens.

The Piraeus tower refurbishment, a €50-million project supported by the EBRD, will be a landmark in a new generation of sustainable office design using bioclimatic principles, a trend that is promoted both by EU funding principles and by the demand for healthy office spaces in the wake of COVID-19.

Logistics

The Piraeus port has been named among the 40 best connected ports globally by UN development agency UNCTAD. With direct links to 113 other ports, Piraeus ranks 37th among 939 commercial ports rated by the UN report. A record 5.65 million TEU of container volumes moved through Piraeus in 2019, making it the busiest container port in the Mediterranean.

Piraeus Port tops ranking of world’s best connected ports. Copyright:Aerial-Motion / Shutterstock

Privatisations

Privatisation agency HRADF has extended the deadline for bids on the North Kavala underground gas storage facility by a month, to September 30. The contract is for the development and operation of the depleted gas field as a storage facility, with an estimated capacity of 1 billion cubic metres, over a period of 50 years.

Banks

Piraeus Bank has become the third systemic bank to submit a formal request to avail itself of the Hercules programme of state guarantees, for its portfolio code-named Phoenix. Phoenix is valued at €1.9 billion and will be followed by another portfolio, called Vega, valued at €5 billion.

The systemic lenders are preparing to call on the Hercules scheme to guarantee a total €32 billion of loans by the end of 2021.

Meanwhile, banks have started to prepare their balance sheets for the end of loan servicing moratoria, which are expected to once again increase non-performing exposure (NPE) ratios. National Bank of Greece and Piraeus Bank have doubled loan loss provisions in the first six months of this year, something that is also expected from Eurobank and Alpha when they announce their results. At this stage, €19 billion of loans are under moratoria, €9 billion of which are mortgages, while 40% of the loan volume relates to business.

Stock market

The ASE general index recorded marginal gains of 0.27% in a week of low trading volumes leading up to the August 15 holiday, with the banking sector up by 1.69%. Investors are holding their breath for the Q2 results expected at the end of August, which will give a clearer picture of economic activity during the lockdown.

The Finance Ministry is planning to overhaul stock market regulations in order to attract more investments in domestic equities. At least 20 proposals are on the table for regulatory reforms ranging across new product licenses, enhanced AML protocols, fintech initiatives, and tax incentives for market participants.

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