piraeus bank group


Greek Outlook 2015-2017: A delicate balance between certain negatives and potential positives

  • This presentation is dedicated to describing our views and thoughts regarding the Greek economic outlook for 2016. Yet, before moving on to focus on the economic developments of 2016, we should devote one last thought to 2015 and understanding why it turned out the way it did. This is important not only for philosophical reasons, but also because the lessons learnt in 2015 should inform our thinking about 2016.
  • In that respect, the big question that needs to be answered is “Why did 2015 turn out much better than anybody anticipated?” especially given the massive self-imposed shock of “bank holidays” and “capital controls”.
  • The answer, to my mind, lies in the chart (page 18) that breaks down economic activity into cyclical (such as investment) and non-cyclical (such as consumption) components. While the cyclical component of economic activity collapsed the non-cyclical component demonstrated remarkable resilience.
  • Therefore, it may well be the case that consumption has declined over the crisis years to such levels that only its most inelastic part remains and Greeks are willing to continue financing that part either through past wealth (i.e., a negative saving rate) or through their stash of cash. Either way, we believe that the fact that we have reached a minimum level of consumption puts a floor under further recessionary pressures. Our outlook for 2016 represents a balancing act between negative events that have already materialised, such as the 3rd wave of fiscal consolidation and pension system rationalisation which is already under way and a set of positive actions that have the potential not only to mitigate but even to counterbalance the recessionary impact of the former.
  • More specifically, we believe that economic sentiment could benefit substantially from the normalisation of the funding schedule from the official sector, the gradual relaxation of capital controls and the return of excess cash to the banking system post recapitalisation, the acceleration of the privatisation programme and the payment of arrears to the private sector.
  • A necessary pre-condition for all these is the successful completion of the 1st review of the current economic adjustment programme and the restoration of political visibility.
  • For 2016 our baseline scenario is one of a mild contraction in the first half of the year, due to the lagging impact of the financial disruption caused by the capital controls and the effect of the new fiscal consolidation measures introduced in Q3 & Q4 2015 plus the new adjustments in payroll taxes and pension expenditure scheduled for Q1-2016.
  • Following the stabilization, on a quarterly basis, in Q2-2016 we expect steady growth in the second half of the year based on the restoration of business confidence, low starting levels of economic activity, a robust tourism season, an acceleration of the absorption of EU funds and of the privatization programme.
  • Provided that the above tailwinds materialize the balance between negatives and positives is tilted to the positive side with intra-year growth dynamics expected to be 0.5%. Yet the full year GDP is expected to come in at -0.6% due to an estimated negative carry-over effect of -1.1%.