City analysts baffled as Greek economy expands

Chris Papadopoullos
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The Greek economy expanded in the second quarter despite political troubles
EXPERTS were left searching for answers yesterday as Greece, which has seen nine months of economic uncertainty and a slow-motion bank run, posted strong economic growth.

In the three months ending 30 June, the economy grew by 0.8 per cent.

“We had feared a big contraction,” said Jonathan Loynes from Capital Economics.

“Though note that the figures may well be revised in later releases.”

Capital controls were introduced at the end of this period, but the anticipation of them may have led some Greeks to spend their cash before it could be locked in the banks or converted to a different currency with a lower value.

“Monthly retail sales figures suggest that stronger household spending – perhaps in anticipation of capital controls – may have contributed to the expansion,” Loynes said.

Car sales climbed over the period, consistent with this view. It is possible this could have occurred with other big-ticket items.

Economists Jamie Murray and David Powell at Bloomberg Intelligence said the surprise growth could be due to falling prices. “Flattering real GDP belies weakness,” they said.

Real GDP can rise if total spending in the economy stays the same and prices fall.

Nominal GDP, which measures spending, contracted by 0.7 per cent over the three-month period. This means it could have been down to prices falling. However, the inflation rate is steady over the period.

Although the growth is puzzling, economists are in agreement that the Greek economy has been in rapid decline since capital controls were introduced at the end of June.

A survey of manufacturers shows production has fallen off a cliff as they have struggled to import raw mat­erials from abroad due to capital controls.

Business and consumer confidence has also collapsed, according to the European Commission’s economic sentiment indicator.

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