Economic growth improves in Q2

GDP growth accelerated to 2.7% year on year in the second quarter, from 2.0% in the first quarter. Private consumption growth improved to 3.2% year on year in Q2 from a 2.5% expansion in Q1, thanks to softer price pressures and a resilient labor market. Government consumption dropped, contracting 1.4% in Q2 (Q1: +2.1% yoy). Meanwhile, fixed investment growth fell to an over two-year low of 7.9% in the second quarter (Q1: +8.2% yoy), likely dented by tighter financing conditions. Exports of goods and services increased 0.1% on an annual basis in the second quarter, which was below the first quarter's 7.1% expansion. In addition, imports of goods and services growth slowed to 0.6% in Q2 (Q1: +5.2% yoy), marking the worst reading since Q1 2021. On a seasonally adjusted quarter-on-quarter basis, GDP growth improved to 1.3% in Q2, compared to the previous quarter's flat reading. Q2's reading marked the best result since Q1 2022.

In H2, economic growth is set to slow, but it will remain well above the Euro area average. Higher interest rates will be the main culprit of the slowdown. That said, lower inflation relative to H1 and a robust labor market will provide support. Analysts at Fitch Solutions commented on risks to the outlook: “Should growth in the eurozone surprise in H2 2023, we expect the Greek economy to see further upsides to growth through external trade channels, particularly in goods exports. On the other hand, the extent of the negative impact of higher interest rates on Greek economic activity remains highly uncertain. Fixed investment growth could yet surprise to the downside as the weak external environment reduces business willingness to invest in additional capacity alongside the higher rates on loans.”

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