Greece: Growth surges to over decade high in Q3
According to provisional data released by the Hellenic Statistical Authority (ELSTAT), the Greek economy gained momentum in the third quarter, growing at the fastest pace since Q3 2007. GDP expanded 2.4% annually in Q3, up from 1.5% in Q2. The print overshot analysts’ expectations and highlights the long way the economy has come since the height of the crisis. That said, growth is still moderate and gradual considering the depth of the country’s recession, and the third quarter’s expansion was largely driven by a significant contribution from inventories.
Outside of the rise in inventories, growth dynamics in the domestic economy were lackluster. Private consumption grew 0.8% year-on-year in the third quarter, matching the second quarter’s reading. The labor market has tightened in recent quarters and the unemployment rate hit a seven-year low in August, providing a boost to household spending. Nevertheless, overall unemployment is still elevated, particularly among youths, and austerity measures have limited households’ spending power. Meanwhile, government spending plunged 4.1%, due to fiscal tightening (Q2: -4.3% year-on-year). In addition, fixed investment fell a notable 22.8% in Q3, notably contrasting Q2’s 20.6% expansion. The sharp decrease was largely due to strong base effects as well as weak business confidence. Looking ahead, although investment figures in Greece have been wildly volatile in recent quarters, overall reduced political uncertainty and supportive financial conditions should help investment pick up.
Meanwhile, the external sector dragged on growth as imports surged, growing 16.3% annually and reflecting a slowly strengthening domestic economy. Export growth, however, lost steam although remained solid overall. Exports expanded 8.3% year-on-year, down from Q2’s 14.0% increase. The healthy reading was partly due to a thriving tourism sector, which has become the economy’s lifeline.
The economic recovery should gain momentum going forward thanks to falling unemployment and booming investment. While the country’s debt burden in the medium-term has been notably lessened by June’s debt relief agreement, doubts remain over the long-term sustainability of its load and the government’s willingness to maintain fiscal discipline.