Ethniki Bank – Growth of more than 13% with a boost from consumption and tourism

Consumption and tourism recover dynamically confirming the optimistic scenario for GDP in the 2nd and 3rd quarter of 2021

The latest update of the NBG’s high frequency forecast of Greek GDP shows that Q2 GDP growth was very strong and more broad-based than the previous estimate.

GDP is now projected to have increased by c. 13.0% y-o-y (0.7% q-o-q, s.a.) in Q2:2021 – compared with previous estimates of 10.1% y-o-y in late-May.

Most encouragingly, high-frequency information from business surveys, mobility and international flights data for July and August indicates that the strong momentum is continuing into Q3, despite the persistent Covid-19-related risks, with the NBG indicator increasing by 11.2% y-o-y in this two-month period.

The reopening of economic activities and declining uncertainty spurred a strong rebound in consumer spending and supported domestic production while exports remained robust (manufacturing production increased by 14.4% y-o-y and by 1.2% q-o-q, s.a. in Q2:2021).

Greek household demand for services also responded strongly to the lifting of restrictions, with the accommodation & food services, transportation and recreation-arts sub-sectors recording the strongest increases in turnover in both y-o-y and q-o-q terms.

Following a subdued start to the tourism season in May 2021, activity strengthened significantly in June and especially in the important July-August months, with inbound tourism arrivals by air narrowing the gap from the respective months in 2019 to around -30.0% in July and to an estimated -20.0% in August – from -74.0% in June and -88.0% in May.

The labor market response to the economic recovery and the withdrawal of the extraordinary support schemes is very encouraging. The unemployment rate declined to a 10½-year low of 15.0% in June 2021, with employment increasing by a solid 4.8% y-o-y in this month (+1.7% y-o-y in Q2:2021).

Looking forward, the stage is set for a sharp increase in gross fixed capital formation in H2:2021, as (i) capacity utilization in industry rose to 76.8% in June – the highest level since August 2008 – while capacity utilization in services climbed to 87.7% in July, the highest level since Q2:2019, (ii) large construction projects are accelerating, and (iii) the first €4 bn tranche of grants and loans from the EU Resilience and Recovery Fund (RRF) was approved.

The achievement of vaccination program targets for H1:2021 bolstered confidence and limited health risks. Nonetheless, Covid-19 cases and ICU admissions increased significantly in August due to the “Delta” variant.

The success of recently-announced Government policies to incentivize vaccinations and timely increase coverage to above 70% of the total population from 57% currently – following a significant slowdown in vaccinations in July-August – is critical to alleviate health and economic risks for the remainder of the year.

FY:2021 GDP growth forecast has been maintained unchanged at 5.7%, with increasing upside risks from the strong momentum built in 8M being offset by higher uncertainty over the impact of more infectious Covid-19 variants in Q4:2021.

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