Private sector's pre-emptive actions limit the damage from capital controls - October 2015

Pre-emptive actions by the household and business sectors limit the recessionary impact of capital controls


Capital controls were initially expected to have a large impact on a cash-based and import-dependent Greek economy. However, the most recent readings of coincident indicators (available for the period July-September) suggest that downside pressures on activity are evident, but not severe.

This resilience largely reflects the fact that capital controls had been anticipated by Greek households and firms, permitting them to pre-emptively draw up contingency plans, to cushion their near-term impact.

  • The private sector built up liquidity buffers, withdrawing about €41bn of bank deposits since November 2014, of which €9.3bn corresponded to enterprises' deposits (or 39% of their deposit stock in November 2014) and €32bn to households' deposits (24% of their November 2014 level).
  • Greek firms increased their imported inputs by an estimated 11.7% y-o-y in H1:2015 to minimize the risk of supply shortfalls.
  • The value of cashless transactions has doubled since July, reducing the impact of the bank holiday and limits on cash withdrawals.

The resilience also reflects the advanced stage of economic rebalancing in Greece following a painful multi-year economic adjustment, which made it far more resilient to external shocks. Moreover, the new programme provides financial resources to cover Greece's external financing needs during the period 2015-2018 and, as such, provides an immediate boost to investor confidence.

NBG's model for near-term GDP forecasting, that combines information from coincident and survey-based indicators, suggests that GDP will contract by -1.3% y-o-y in FY:2015 (-3.7% y-o-y in H2:2015) -- significantly better than expected -- and by -1.2% in FY:2016, with a quarterly expansion in GDP starting during H1:2016. Moreover, the bulk of the decline in activity will be due to further fiscal adjustment (an estimated fiscal drag of 2.5% of GDP in H2:2015) rather than the impact of capital controls. The prospective acceleration in government arrears clearance is expected to reduce the effective fiscal drag in FY:2016 to 1.0% of GDP from an estimated 1.4% in FY:2015.


Τhe analysis also includes:

Overview of economic developments in Greece and key macroeconomic forecasts.​

Private sector's pre-emptive actions limit the damage from capital controls - October 2015