GIG Economic Bulletin – November 9, 2020

A ratings upgrade from Moody’s signalled the markets’ confidence in the long-term prospects of the Greek economy, however short-term growth looks increasingly elusive as the country enters a three-week national lockdown.

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With coronavirus cases on the rise, Greece implemented its second national lockdown on Saturday, a move analysts expect will hamper economic growth for 2020. Despite the challenging environment, international credit ratings agency Moody’s upgraded Greek debt to Ba3 with a stable outlook, placing it three steps away from investment grade. Meanwhile, gas networks operator DESFA acquired a 20% stake in Gastrade, and COSCO announced plans to invest in the development of a fourth pier at the Piraeus Port, increasing the port’s capacity to 10 million TEUs.

COVID-19 measures

The government announced a three-week national lockdown on Saturday, after a sharp increase in COVID-19 infection and hospitalisation rates. Additional spending of €3.3 billion on economic support is on the way for workers and businesses affected by the special measures, which will see non-essential retail, dining, and entertainment closed and restrictions placed on citizens’ movements.

Macro

The prospect of a second lockdown means that expectations now point to a double-digit recession for 2020, while the prospects for a 2021 recovery are being toned down by domestic bank analysts. National Bank of Greece (NBG) now forecasts a GDP contraction of -9% in 2020, from -7.5% in September, while next year’s recovery is not expected to exceed 5%. Alpha Bank agrees that the key now is next year’s recovery, which was previously seen at 5.5% but is likely to be revised downwards. Eurobank is also concerned that a double-digit recession might not be avoided this year, while challenges will continue in 2021.

The Manufacturing Purchasing Managers’ Index (PMI) slipped from 50 points in September to 48.7 points in October, signalling an overall deterioration in the Greek manufacturing sector. There was further decline in output driven by a fall in new orders in October, which IHS Markit analysts attributed to uncertainty over the second wave of the pandemic across Europe.

Greek exports without petroleum products rose 6.8% in September led by food, beverages, and tobacco, while imports fell by -16% and the trade deficit shrunk by -24%. Petroleum product exports for the month fell by -46%. The total trade deficit for the first nine months of the year shrunk by -19% Y-o-Y to €13.5 billion.

Fiscal

The Finance Ministry is rewriting the budget to take account of the second pandemic wave. The -8.2% recession included in the draft budget is likely to be revised, while it is now expected that the primary deficit will exceed 7% of GDP, and the public debt ratio is unlikely to fall below 204-205% of GDP.

Ratings

Ratings agency Moody’s has upgraded Greece from B1 to Ba3 with a stable outlook, based on the country’s recent record of reform and its positive growth prospects, despite the short-term effects of the pandemic. The upgrade places Greek debt three notches away from investment grade.

Energy

The implementation of the Target Model in the electricity sector kicked off on November 1, marking the most important reform of the Greek electricity market to date. The change brings Greece in line with most of Europe, allowing the creation of a single electricity market. The initial stage is expected to be followed by the coupling of the Greek market with that of Bulgaria and Italy, which is expected to result in savings for consumers of over €25 million annually.

Greece is expected to couple its wholesale market with Italy in December and Bulgaria in March. Copyright: urbans / Shutterstock

Volkswagen and the Greek government have signed a memorandum of cooperation on a pilot project to turn the island of Astypalaia in the Dodecanese into a Green & Sustainable Island. The project will involve replacing public transport with electric vehicles and offering generous incentives for residents to invest in electric cars. The vehicles will be powered by carbon neutral electricity generation which will also cover the island’s electricity needs.

Gas networks operator DESFA has acquired a 20% stake in Gastrade, the developer of the Alexandroupoli floating LNG terminal (FSRU). The deal, which will await the approval of the Greek and EU authorities, adds DESFA to the venture which includes GasLog Cyprus, DEPA Commercial and Bulgartransgaz.

Ports & shipping

Greek tankers moved 11.9 billion tonnes of oil in 2019, placing them first globally according to a report by Lloyds List Intelligence. Around 5,000 Greek-owned tankers made 230,000 calls in ports around the world.

Following 10 years of growth, COSCO is planning a further expansion of the container terminal at Piraeus Port. The addition of a fourth pier will increase the port’s capacity to 10 million TEUs. COSCO also plans to invest €20 million in upgrading the port infrastructure. The company’s investment in the port to date has created over 2,500 jobs and brought in €500 million of revenue to the Greek state according to corporate figures released in the past week.

Stock market

The ASE general index rebounded with weekly gains of 3.26% to close at 588.1 points on Friday. The banking sector was up 3.24%, recovering some of the losses of the previous week.

The KEPE GRIV “fear index” rose to 34.3% in October from 27.4% in September, indicating rising uncertainty in the Greek markets.

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