V-shaped recovery takes form; NBG ups 2021 growth forecast to 7.5%

National Bank (NBG) raised on Thursday its growth forecast on the Greek economy for this year to 7.5% from 5.7% previously.

According to an analysis from the lender, GDP growth in the second quarter of 2021 (16.2% year-on-year and 3.4% quarter-on-quarter) exceeded expectations, beating even estimates from NBG’s high frequency index (forecast for GDP growth of 13% per year in the second quarter). The recovery, analysts say, has taken on a V-shape with GDP in absolute terms returning to levels seen in the second quarter of 2019, both at fixed and nominal prices.

Analysts say that while this performance should obviously not be seen as a reversal of the pandemic, it is still a very optimistic message about the potential of the economy, the resilience of the business sector and the effectiveness of budget support.

The recovery is also notable due to the fact that the contribution from tourism in this quarter was still limited, as the opening of the sector took place in mid-May, while the performance in June was still weak. Consumption and investment played a key role in contributing to GDP growth in the second quarter of the year.

In a report, the bank also points out that:

• Private consumption increased by 13.2% per year (or by 3.6 billion euros compared to the second quarter of 2020), contributing 9 percentage points to annual GDP growth (ie 55% of total growth), in comparison with the corresponding quarter last year when strict restrictions were applied during the pandemic.
• The role of support measures for disposable income and employment was crucial, while the labor market response to the opening up of the economy was dynamic, enabling the smooth withdrawal of these measures. Unemployment (seasonally adjusted) fell to 14.2% - a 10-year low - in July and employment grew at an accelerating rate (+ 4.8% per year in July from + 1.8% per year in the second quarter of 2021). As a result, labor income increased by 1.6% per annum in the second quarter of 2021, compared to -4.9% per annum in the first quarter and -1.1% per annum in the whole of 2020.
• Fixed capital investments continued to exceed expectations, increasing by 12.9% per year, and added 1.5 percentage points to the annual GDP growth in the second quarter of 2021. It is emphasized that in the same quarter, investments, in absolute terms, exceeded by 0.8 billion euros in value in the second quarter of 2019.
• Exports of goods accelerated further to 17.1% per annum, at stable prices, in the second quarter with an outperformance of non-fuels which reached a new record high and as a percentage of GDP (estimated at 14.5% versus 19.2% for all freight exports). This development confirmed their consistent upward trajectory, which was strengthened during the pandemic. Exports of services increased by 29% per year amid a rapid recovery of tourism from a very low base. Net exports (exports minus imports), however, had a negative contribution of 1.2 percentage points on GDP in the second quarter, due to a strong increase in imports of goods and services.