Weekly bulletin – June 8, 2020

Greece sets out plans for radical economic over overhaul, as investor sentiment improves

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Greece announces ambitious 3-pronged economic overhaul plan placing the green economy, digital transformation, and agricultural policies at centre stage. Yields on 10-year Greek government bonds drop 9 bps below their Italian counterparts on the back of improved economic sentiment and the expansion of the ECB’s emergency bond buying scheme. Large-scale energy projects roll ahead with IPTO, DESFA, and MYTILINEOS leading the charge, while the Athens bourse’s main index has already recovered 44% of the losses suffered due to the pandemic.

Recovery plan

Digital transformation, green growth, and agricultural policies are the three pillars of the plan that is set to be submitted by the Greek government to the European Commission in October for the EU Recovery Fund. Finance Minister Christos Staikouras has said in a series of interviews to the Greek press that the main goals of the government’s strategy are to increase productivity and improve competitiveness, while he expects the country’s economy to contract by a maximum of 8% of gross domestic product (GDP) this year, due to the effects of the coronavirus pandemic.

Meanwhile, and in a bid to incentivise investments, the government is considering a reduction to the corporate income tax deposit paid by companies in 2021, targeting those enterprises that saw their earnings plummet during the lockdown. Additional details are expected to be announced in July.

Economy

Greek GDP contracted in the first quarter of 2020 by 1.6% compared to the last quarter of 2019, according to provisional figures released by the Hellenic Statistical Authority (ELSTAT). Compared to Q1 2019, Greece’s GDP decreased by 0.9%. The period in question includes the second half of March and reflects the economic effects of the beginning of the lockdown, however an increase in public consumption and exports helped to cushion the impact.

Economic sentiment fell by 10.8 points month-on-month in May, according to the European Commission’s ESI index, reaching 88.5 points – 13.9 points below May 2019. Deterioration was evident across all underlying components.

Greece’s manufacturing PMI rose to 41.1 points in May from 29.5 points in April, marking the second-sharpest decline in manufacturing operating conditions since August 2015. Index publisher Markit noted that the partial recovery was linked to a slower decrease in production compared to the abrupt closures of the previous months, with client demand at mediocre levels and staffing levels running low due to furlough.

Greek Government Bonds

Greek 10-year bond yields fell 9 bps below those of Italy on Wednesday, while strong demand for a 26-week T-Bill issue saw its interest rate tumble to 0.25% compared to 0.36% achieved at a similar auction in April. Analysts attributed the moves to more favourable expectations of a Greek rebound compared to Italy, as well as the European Central Bank’s emergency bond buying scheme, dubbed Pandemic emergency purchase programme (PEPP), which has led to the purchase of €4.7 billion worth of Greek debt to date.

The ECB’s announcement of a €600 billion extension to the PEPP stimulus package means Greece is entitled to have €18.5 billion of debt purchased in the first phase, and an additional €15 billion acquired through the €600 billion expansion of the programme. This makes a new market foray extremely likely, even as soon as this week when it is speculated that Greece may proceed with an issue of 1-2 billion euros.

Real estate

In a further indication of the economic momentum cut short by the pandemic, Bank of Greece data showed that the nominal value of apartments in Greece rose by 6.9% YoY in Q1 2020, marking the ninth consecutive quarter of property price increases.

The number of Golden Visas issued to foreign property purchasers was limited to 271 in Q1 2020, marking a significant slowdown from 2019, when 3,172 new visas were issued. Market insiders expect the trend of the first quarter to continue, as the uncertainty of the pandemic puts a damper on property transactions.

Meanwhile, ELSTAT reported that building activity measured by the number of building permits rose by 64.3% in February.

Banks

Greece’s systemic banks released their Q1 results, with Piraeus Bank posting a net loss of €232 million, while Alpha Bank announced a hit totalling €10.9 million. NBG reported net profits of €409 million and Eurobank announced profits amounting to €56.8 million.

Eurobank announced the completion of the deal to sell 80% of it FPS business to doValue, as well as the securitisation of its Cairo and Europe debt portfolios, as part of the banks’ NPE reduction strategy in partnership with the Italian loan servicer.

Energy

The Greek government announced incentives to encourage the uptake of electric vehicles, while supporting the development of a network of charging stations, and the creation of cutting-edge production units for electric cars. The aim is to for electric cars to account for 30% of registered vehicles by 2030. Launching the initiative on World Environment Day, Prime Minister Kyriakos Mitsotakis declared that “Greece is preparing to plug into the future”.

Public Power Corporation (PPC) plans to install 1,000 recharging stations in Greece over the next two to three years. Copyright: buffaloboy / Shutterstock.com

Power transmission system operator IPTO (also referred to by its Greek acronym ADMIE) is due to sign off on the construction of the Attica-Crete interconnector, a €1-billion infrastructure investment that is expected to reduce Crete’s carbon footprint by 60% and shave €400 million off customer’s bills. Siemens, Prysmian, Nexans, TERNA and Hellenic Cables are among the companies participating in the project which is due for completion in 2023.

Gas network operator DESFA announced that it is on course to complete a truck loading station at its LNG terminal at Revithoussa, off Pireaus, to allow LNG to be transported by road to remote off-grid locations. The station which will be built at a cost of €6.5 million is seen as the first link in a small-scale LNG supply chain covering Greece and Southeast Europe.

Industrial conglomerate Mytilineos has signed a ten-year supply contract with Gazprom extending to 2030. Mytilineos was Greece’s largest importer of natural gas as of March 2020, accounting for 45% of imports overall, and 49% of LNG imports, as well as the largest natural gas consumer in the Greek market.

Tourism

Prime Minister Mitsotakis unveiled a new national tourism campaign with the slogan “Greek summer is a state of mind” at an outdoor event in Athens, ahead of the official reopening of the Greek tourist season on June 15.

Athens International Airport received 230 flights on June 1, 75% of which were domestic, as internal flight connections gradually resumed. Domestic airline Volotea announced more frequent flights in the course of June, while Air France, Austrian Airlines and Wizz Air also launched their summer schedules from European airports to popular tourist destinations in Greece.

Stock market

The ASE general index closed the week at 683.46 points, after an impressive 8% rally of the banking sub-index led by Eurobank during Friday’s trading. The index has now recouped 44% of the losses incurred due to the pandemic.

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