Despite improvements to Greek GDP last Friday showing that the economy contracted by just 3.8 per cent compared to a year earlier (down from a previous estimate of a 4.6 per cent contraction), the country may have not have reached a turning point.
Ben May, European economist, Capital Economics:
No seasonally adjusted data are published, but we estimate that GDP may have expanded by 0.7% on a quarterly basis, far better than the 1.5% fall in Q1 and the 0.3% gain recorded by the euro-zone as a whole in Q2. It would also be the first quarterly gain since Q4 2009.
The upward revision suggests that Greece is on track to meet the Troika’s forecast for GDP to shrink by 4.2% in 2013 as a whole. Even if Q2’s rise proved to be a one-off, GDP would need to fall by more than 1% in Q3 and Q4 – a bit worse than the average quarterly fall recorded over the past four quarters – for GDP to shrink by more than the Troika’s forecast. But it remains to be seen whether the economy will stage the sustained pick-up in activity next year that the current bail-out package assumes.
In all, we would not be surprised if Greece contracted by a little less than the Troika’s forecast of 4.2% this year. But we still expect the economy to shrink by about 2% in 2014, far weaker than the Troika’s forecast of a 0.6% rise. Not only will this mean that Greece’s €11bn financing gap may grow larger but it also means that debt will continue to climb. We expect a third bail-out to be put in place to ensure that the hole in Greece’s financing needs is fully plugged, probably soon after the German general election later this year.