Greece: Economy contracts at a softer pace in the second quarter
August 29, 2016
Greece’s economic contraction eased in the second quarter of the year, as more complete data released on 29 August by the Hellenic Statistical Authority (EL.STAT) confirmed. While a flash estimate had indicated that the economy contracted just 0.1% over the same period last year, more detailed data show that GDP contracted a stronger 0.4%. The result mainly came on the back of improvements in fixed investment and private consumption.
Domestic conditions improved in the second quarter amid a softer contraction in private consumption and a rebound in fixed investment. Private consumption continued to fall in Q2, dropping 0.6%, as tax hikes and high unemployment continued to weigh on it (Q1: -1.7% year-on-year). On a positive note, the result marked the softest drop in a year. The contraction in government consumption was slightly sharper than in Q1, tallying a 2.7% fall in Q2 (Q1: -2.6% year-on-year), as the government is trying to return to a sustainable fiscal stance. Conversely, fixed investment rose a robust 6.4%, contrasting Q1’s 1.5% drop, suggesting that the business climate could be improving.
The external sector’s contribution to overall economic growth continued to deteriorate, swinging from a small positive contribution to a negative one. Exports continued to plummet, albeit at a more moderate pace, dropping 10.5% in Q2, which followed the first quarter’s 14.1% fall. Greece exports a number of refined oil products, whose value has been falling due to the subdued-oil-price environment. Meanwhile, the drop in imports also moderated somewhat, falling 7.1% in Q2 after decreasing 10.6% in Q1. Overall, the external sector contributed minus 1.0 percentage points to growth in the second quarter of 2016, which contrasted the plus 0.1 percentage points recorded in Q1.
On a quarterly basis, the economy grew 0.2% in Q2 in seasonally-adjusted terms, which contrasted the 0.2% drop tallied in the second quarter and was slightly worse than the 0.3% increase reported in the preliminary estimate. Despite the improvement over the previous quarter, the overall picture remains bleak. High levels of unemployment persist and many key conditions including improving flexibility in the labor market and regulating nonperforming loans are still outstanding.