Greece: Recovery loses traction in Q2
According to provisional data released by the Hellenic Statistical Authority (ELSTAT), the Greek economy lost some momentum in the second quarter, after expanding at the fastest pace in over 10 years at the start of the year. GDP expanded 1.8% annually in Q2, down from 2.6% in Q1. The print matched FocusEconomics’ expectations. While the economy has come a long way since the height of the crisis, growth is still moderate and gradual considering the depth of the country’s recession.
The slowdown was driven by a deterioration in the domestic economy in the second quarter. Private consumption growth slowed from Q1’s 1.3% to 0.4%. While the labor market has tightened in recent quarters, unemployment is still elevated and austerity measures have dented households’ spending power. Government consumption plunged 2.0% in the quarter, the biggest drop in over a year, as the government pursues fiscal consolidation. In addition, fixed investment fell 5.3% in Q2, a softer drop than Q1’s 9.9% decrease which was largely due to strong base effects.
Meanwhile, export growth picked up to an over three-year high of 14.0% annually (Q1: +12.5% year-on-year). The tourism sector, which has become the economy’s lifeline, continued to support growth, buoyed by reform measures to improve competitiveness, as well as economic conditions that are suppressing prices. Moreover, import growth was flat after contracting 4.0% in Q1.
The economic recovery should gain momentum going forward as investment returns to growth amid higher sentiment and improved financial conditions. In addition, private consumption should also rise modestly as conditions in the labor market improve. 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.