Greece Macro Flash: GDP Q3:2018

Economic activity gained traction in Q3:2018, with the breakdown in GDP growth, more encouraging than primary data suggest

Greek GDP data for Q3:2018 confirm that economic activity is on an upward trend. Indeed, GDP grew by 2.2% y-o-y from 1.7% in Q2:2018, and by 1.0% q-o-q (seasonally adjusted data), the strongest pace since Q2:2017.

A cursory look at the structure of GDP surprises at first, as the build-up of inventories appears to contribute 8.3 pps in Q3:2018 annual growth, while gross fixed capital formation has fallen sharply by 23.2% y-o-y.

However, a closer look at the data suggests that both the overly positive contribution of inventories and the collapse of investment, in Q3:2018, are mainly due to a statistical adjustment in Q3:2017 that creates a sizeable base effect. This adjustment, which affects the third quarter of 2017, stems from the inclusion in investment expenditure for non-residential construction of completed projects carried out by means of concession agreements, which prior to completion, were recorded under inventories.

If we adjust the data and thereby correct the impact of this reclassification, we see that gross fixed capital formation shows growth of 25.1% y-o-y in Q3:2018 in comparison to a decrease of 23.2% y-o-y for the primary data.

The positive underlying trends in investment outlined above, as well as domestic spending overall, are likely to strengthen further in Q4:2018, supported by the substantial acceleration in disbursements by the Public Investment Budget.

In light of the foregoing analysis and available data for forward-looking and coincident economic indicators for Q4:2018, it appears increasingly likely that the annual GDP growth target of 2.0% for FY:2018 will be outpaced.