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Greece: Greece's downturn worse than previously estimated

November 27, 2015

Greece’s economic downturn in the third quarter was much worse than initially estimated, revised data released by the Hellenic Statistical Authority (EL.STAT) showed on 27 November. While a previously-released flash estimate indicated that the economy had contracted a meagre 0.1% over the same period last year, more detailed data show that plummeting investment drove a more pronounced decline of 0.9%. Although the result marked the largest contraction since Q4 2013 and contrasted Q2’s 1.3% growth, the figure was still above earlier predictions by market analysts of a much deeper slide.

Q3’s downturn was driven by plunging fixed investment, which dropped a substantial 40.0% over Q3 2014 (Q2: -18.5% year-on-year). The fall is attributed to the high degree of uncertainty that plagued Greece’s business climate at the onset of the quarter. The backdrop of capital controls, “Grexit” fears, political instability and tense bailout negotiations not only squeezed investment but pushed private consumption into contraction as well. Private consumption swung from a 2.4% increase in Q2 to a 0.6% fall in Q3. In contrast, government consumption was the only component of domestic demand to improve, swinging from a 1.5% fall in Q2 to a 0.4% rise in Q3.

While domestic demand drove the decline, positive impetus from the external sector limited the fall. The external sector contributed 2.3 percentage points to economic growth in the third quarter, up from the second quarter’s 1.9-percentage-point contribution as plummeting imports overcompensate for dwindling exports. Imports dropped 20.1% (Q2: -3.4% yoy), likely weighed on by depressed demand and the capital controls. Exports swung from a 2.6% expansion to a 10.0% contraction in the third quarter, which marked the worst result since Q4 2009. Despite a record tourism year, exports underperformed in the third quarter partly due to the affect capital controls had on revenue flows. In addition, Greece exports a number of refined oil products, the value of which has been hit by the subdued oil price environment.

On a quarterly basis, the economy fell 0.9% in Q3 in seasonally-adjusted terms, which was a more pronounced decline than the preliminary estimate of a 0.5% drop (Q2: +0.3% quarter-on-quarter). Despite the downward revision, the figure is better than the 2.7% contraction that market analysts had been expecting before the release of the flash estimate and confirms that the capital controls were less damaging to the economy than initially thought.

The government expects the economy to record zero growth in 2015 and to fall by only 0.7% in 2016. At this stage, the FocusEconomics panel is less optimistic for this year. Panelists see the economy contracting 0.8% in 2015, which is up 0.4 percentage points over last month’s forecast. For 2016, the panel expects growth of 1.0%, which is up 0.3 percentage points from last month’s forecast.


Author: Angela Bouzanis, Senior Economist

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Greece GDP Q3 2015 1

Note: Year-on-year changes of GDP in %
Source: Hellenic Statistical Authority (EL.STAT) and FocusEconomics Consensus Forecast.


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