Greek GDP growth experienced a temporary pause yet continued to outpace the euro area average despite the drag from deferred government expenditure and weaker external demand
GDP growth slowed to 2.1% y-o-y in Q3:2023, from 2.6% in Q2, but outpaced the euro area average (0.0% in Q3) by a wide margin, and for a 9th consecutive quarter. ▪ The Q3 outcome was weaker than our initial projection of Q3 GDP growth (c. +3.0% y-o-y, revised to 2.6% in November) due to the following factors: i. lower government expenditure (both consumption and PIB) resulting in a fiscal drag of c. ½ pp,
ii. a smaller-than-initially expected export contribution (+0.4 pps to Q3 growth from 1.1 pps in H1:2023), especially from goods, reflecting a sharper-than-previously anticipated slowdown in Europe,
iii. a smaller carryover effect of +2.1% y-o-y due to a downward revision in H1:2023 GDP.
▪ Private consumption growth slowed to +0.9% y-o-y in Q3, as the extraordinary impulse from: (i) deferred consumption, (ii) supply chain-related delivery delays and (iii) generous government support, subside, bringing consumption in line with real disposable income and resulting in a welcome increase in the household saving rate.
▪ The deceleration in GFCF to 4.9% y-o-y, from 8.7% in H1:2023, reflects stagnant non-residential construction (+0.6% y-o-y, a 3-year low), mainly, due to delays in PIB spending.
▪ Inventory stockpiling by the business sector had a significant, but deceptive, 1.4-pp contribution to Q3 GDP growth, pointing to healthy business activity, but the net impulse had an offsetting counterpart from higher goods imports (a 1.1-pp drag on Q3 GDP growth).
▪ The income-side decomposition of GDP, in current price terms, suggests that labor income and business profits, both increased by 3.8% y-o-y, albeit decelerating from 6.4% and 7.5%, y-o-y, respectively in H1:2023. The slowdown mainly reflects lower employment growth in Q3 (0.9% y-o-y from 1.6% in H1:2023), as well as decelerating hourly wages due to the larger contribution of basic services in this tourism intensive quarter. Negative base effects from previously active employment support programs in Q2:2022 and increased informal employment due to employment shortages, contributed to this slowing.
▪ The slowdown in gross operating surplus and mixed income growth reflects a compression in profit margins from very high levels – with firms reporting a drop in their pricing power especially in industry and retail trade – combined with negative base effects from extraordinary profits in the energy sector in 2022.
▪ The negative impact on production from the catastrophic flood in central Greece was rather limited (-0.1% of total GVA), with an impact of c. -0.3 pps of GDP expected in Q4, but it will be more than fully offset by already approved government support programs.
▪ Looking forward, GDP is expected to accelerate to 0.7% in s.a. q-o-q terms in Q4 – implying FY:2023 GDP growth of 2.1%, due to: i) increased government expenditure and capital spending deferred from Q3, and ii) accelerating employment growth to 3.5% y-o-y in October from 0.9% in Q2, in part due to an extended tourism season and a pick-up in hiring in other services and trade. In fact, key conjunctural and leading indicators picked-up in October-November, including a surge in manufacturing production by 9.7% y-o-y in October and resilient sentiment in retail, construction, and services sectors in October-November.
▪ The acceleration in RRF-financed capital spending, the pick-up in euro area growth to 1.2% y-o-y in 2024 and the positive impact of the upgrade to investment grade on risk appetite and financial conditions, bode well for stronger growth in FY:2024, estimated at 2.7% y-o-y.
Greek GDP growth experienced a temporary pause yet continued to outpace the euro area average despite the drag from deferred government expenditure and weaker external demand Economic activity in Greece showed signs of moderation in Q3:2023 with GDP growth slowing to 2.1% y-o-y from 2.6% in Q2 – remaining constant in s.a. q-o-q terms – but continued to exceed the euro area average (0% y-o-y and -0.1% q-o-q, s.a.) by a wide margin, and for a 9th consecutive quarter.
The Q3 outcome was weaker than our initial projection for Q3 GDP growth (c. +3.0% y-o-y and +0.7% q-o-q, s.a.) due to the following factors:
i. Lower government consumption which subtracted -0.14 pps from annual GDP growth with another -0.35-pp drag related to lower public investment,
ii. A smaller-than-initially expected contribution of total exports (+0.4 pps to Q3 growth from 1.1 pps in H1:2023 and 2.4 pps, on average in FY:2023), despite the overperformance of tourism due to the stronger-than-expected slowdown in Europe (+0.0% vs +0.3%),
iii. A weaker carryover effect of 2.1% y-o-y on Q3 growth (from 2.5% estimated previously), due to a downward revision in Q2:2023 GDP growth (+1.1% q-o-q s.a. from +1.3% q-o-q in the national accounts release for 6M:2023), mainly arising from private consumption growth revised down in Q2:2023 by about 1.5 pps (with an average y-o-y change of 1.4% in H1:2023, compared with 2.8% in the previous national accounts release for 6M:2023).
Overall, private consumption slowed further to +0.9% y-o-y in Q3:2023, as the extraordinary impulse from: i) deferred consumer spending, ii) supply chain-related delivery delays and iii) generous government support, subsides, bringing consumption in line with real disposable income and resulting in a welcome increase in the household saving rate. In fact, household savings should have increased in Q3 as real disposable income growth is estimated by NBG at c. +2.0% y-o-y, according to the available national accounts and private consumption deflator data for this period, two times the growth rate of private consumption in constant price terms. A weakening in consumer confidence in comparison with Q2, and further increases in bank deposit rates and fixed-income asset yields should have also encouraged savings.