Greece Macro Flash: Q3:2022 GDP growth likely stronger than the headline figure due to excessive statistical adjustments

The underlying growth momentum of the Greek economy in Q3:2022 has been much stronger as suggested by the 4.5% growth in domestic demand

Greece’s GDP growth slowed significantly to +2.8% y-o-y in Q3:2022 (-0.5% on a q-o-q s.a. basis) from +7.1% y-o-y in Q2:2022, due to a sizeable, and surprising, drag from net exports (-2.0 pps) and an expected decline in government consumption (-1.0 pp).

Private domestic demand remained resilient to the inflation shock, with private consumption increasing by a solid 6.2% y-o-y and gross fixed capital formation by 7.7% y-o-y, nearly double the average demand growth in the euro area.

The negative impact of net exports reflects broadly stable total exports (+0.9% y-o-y, in constant price terms) compared with a faster growth in total imports (+5.2% y-o-y), due to resilient domestic demand.

This lackluster export performance in Q3:2022 reflects surprisingly weak services export growth (+3.0% y-o-y, in constant price terms) which seems inconsistent with conjunctural indicators and market data on activity in the tourism and shipping sectors. This outcome reflects the application of a very high deflator growth rate (+26% y-o-y) to a very strong nominal increase in services exports (+30% y-o-y). The services import deflator is also of a similar puzzling magnitude.

NBG has reconstructed the services export and import deflators based on the underlying inflation trends in their key components. The impact would point to a services export deflator of c. 15% y-o-y and a services import deflator of c. 7%, which would translate into a c. 1.0-pp boost to Q3 GDP y-o-y growth.

A second noteworthy implication of the Q3 GDP data, when examined from the production side, is an unprecedented c. 4.0-pp drag from the subtraction of subsidies on energy products from GVA figures to derive GDP.

Although the exclusion of subsidies (and the addition of taxes) is consistent with the statistical standards, a downward bias arises in the Q3 GDP estimates due to timing lags between the subsidies and the taxes with which they are financed.

Specifically, the subsidies will, to a large extent, be financed by proceeds from retroactive taxation on windfall profits of energy producers which will occur in Q4 (and later). This timing difference entails a downward bias to GDP, estimated by the NBG, of around 1.3% of GDP, mostly reflecting private sector domestic demand.

All in all, the combined effect of the above discussed adjustments to the services deflator and net production taxes would add 2.2 pps to Q3 GDP, raising the growth rate close to 5.0% y-o-y for this quarter and leave our FY:2022 GDP growth estimates at 5.8%.

Greece Macro Flash: Q3:2022 GDP growth likely stronger than the headline figure due to excessive statistical adjustments