National Bank of Greece – Growth of more than 13% with a boost from consumption and tourism

The latest update of the NBG’s high frequency forecast of Greek GDP shows that Q2 GDP growth was very strong and more broad-based than the previous estimate.

GDP is now projected to have increased by c. 13.0% y-o-y (0.7% q-o-q, s.a.) in Q2:2021 – compared with previous estimates of 10.1% y-o-y in late-May.

Most encouragingly, high-frequency information from business surveys, mobility and international flights data for July and August indicates that the strong momentum is continuing into Q3, despite the persistent Covid-19-related risks, with the NBG indicator increasing by 11.2% y-o-y in this two-month period.

The reopening of economic activities and declining uncertainty spurred a strong rebound in consumer spending and supported domestic production while exports remained robust (manufacturing production increased by 14.4% y-o-y and by 1.2% q-o-q, s.a. in Q2:2021).

Greek household demand for services also responded strongly to the lifting of restrictions, with the accommodation & food services, transportation and recreation-arts sub-sectors recording the strongest increases in turnover in both y-o-y and q-o-q terms.

Following a subdued start to the tourism season in May 2021, activity strengthened significantly in June and especially in the important July-August months, with inbound tourism arrivals by air narrowing the gap from the respective months in 2019 to around -30.0% in July and to an estimated -20.0% in August – from -74.0% in June and -88.0% in May.

The labor market response to the economic recovery and the withdrawal of the extraordinary support schemes is very encouraging. The unemployment rate declined to a 10½-year low of 15.0% in June 2021, with employment increasing by a solid 4.8% y-o-y in this month (+1.7% y-o-y in Q2:2021).

Looking forward, the stage is set for a sharp increase in gross fixed capital formation in H2:2021, as (i) capacity utilization in industry rose to 76.8% in June – the highest level since August 2008 – while capacity utilization in services climbed to 87.7% in July, the highest level since Q2:2019, (ii) large construction projects are accelerating, and (iii) the first €4 bn tranche of grants and loans from the EU Resilience and Recovery Fund (RRF) was approved.

The achievement of vaccination program targets for H1:2021 bolstered confidence and limited health risks. Nonetheless, Covid-19 cases and ICU admissions increased significantly in August due to the “Delta” variant.

The success of recently-announced Government policies to incentivize vaccinations and timely increase coverage to above 70% of the total population from 57% currently – following a significant slowdown in vaccinations in July-August – is critical to alleviate health and economic risks for the remainder of the year.

FY:2021 GDP growth forecast has been maintained unchanged at 5.7%, with increasing upside risks from the strong momentum built in 8M being offset by higher uncertainty over the impact of more infectious Covid-19 variants in Q4:2021.