Greek recession shows no signs of ending says Capital Economics

Forecasts of Greek economic growth remain too optimistic, according to Capital Economics. The London-based consultancy says that the modest improvement seen in the third quarter GDP figures has failed to significantly benefit Greece.

Greece's flash GDP estimate for the third quarter showed that GDP had gone from -3.7 per cent to -3.0, its highest rate since the second quarter of 2010.

The consultancy believes that the third quarter GDP figures were disappointing and had anticipated that stronger growth in tourism would have had a larger benefit to the economy.

Capital Economics said in their European economics update that the balance of travel services receipts data for the third quarter suggested that tourism rose by approximately 10 per cent on an annual basis.

Tourism possibly accounted for as much as 20 per cent of GDP in the third quarter of each year and that the rise in tourism in the third quarter may have boosted GDP by as much as two per cent.

Capital Economics believe that there are two reasons why the tourism sector is likely to diminish in the coming months: the onset of winter and the fall of tourism to normal rates, meaning the sector will shrink as a proportion of the Greek economy.

The Troika's forecast of 0.6 per cent growth in GDP next year is too optimistic, according to the note, and a fall of two per cent is more likely.

Inflation has also fallen more quickly than the Troika expected, implying that the government's debt to GDP ratio will fall slower than anticipated. A further significant restructuring of its official sector loans will be necessary.

Ben May, European economist:

Admittedly, the news that Greece and the Troika are moving towards a compromise on the size of the additional fiscal measures that Greece will need to implement next year suggests that market sentiment yields have recently fallen to about 8%.

But given that these negotiations are based on towards Greece may improve further in the near term. Note that Greek ten-year government bond unrealistic economic forecasts, tensions between the two parties are likely to re-intensify within a matter of months. The upshot is that we are in no doubt that Greece’s troubles are far from over.