Greece Macro Flash: Economic activity gained momentum in Q1:2022 and remains in high gear in Q2, defying inflation headwinds

Our forecast for GDP growth in FY:2022 is upwardly revised to 4.0%, despite the exogenous headwinds from energy and food induced inflation

GDP growth in Q1:2022 exceeded expectations, reaching 7.0% y-o-y from 8.1% y-o-y in Q4:2021, compared with a euro area average of 5.1% y-o-y. 

Most notably, economic activity in Greece recorded a remarkable acceleration to 2.3% in s.a. q-o-q terms, from 0.8% q-o-q in Q4:2021, as the economy moved past a wave of Covid-19 infections and sustained the rising pressure from accelerating inflation and the eruption of the Ukraine crisis. 

Private consumption stands out as the key contributor to Q1:2022 growth, increasing by an impressive 11.6% y-o-y (+2.5% q-o-q), and providing a 7.9-pp boost to annual GDP growth, mainly on the back of a strong improvement in labor market conditions.

Total compensation of employees increased by 7.4% y-o-y in Q1:2022 – the strongest pace in almost 14 years – on the back of rapid employment growth, with the unemployment rate falling to a 12-year low of 12.6% in Q1:2022 and employment exceeding its pre-pandemic level in Q1:2019 by c. 250K persons.

Gross fixed capital formation increased at a strong double-digit pace for a 5th consecutive quarter (+12.7% y-o-y, +3.7% q-o-q, s.a.), rising to an 11-year high of 13.3% of GDP and underlying the confidence that exists regarding the economy’s prospects.

The resilience of business activity is also confirmed by the data on the income breakdown of GDP (available in current prices), showing that the gross operating surplus and mixed income – that corresponds to profits from incorporated and unincorporated business activity – increased in Q1:2022 by 15.3% y-o-y to a 10½-year high of €26 bn.

The strength of domestic demand has outweighed the 3.1-pp drag from net exports, as the negative impact of the rapid import growth of 17.5% y-o-y  (constant price terms) outpaced the healthy expansion of total exports of 9.6% y-o-y, with tourism playing a relatively limited role in this quarter.

Nominal GDP expanded by an impressive 15.0% y-o-y, 9.3% higher than its pre-pandemic level in Q1:2019, setting a more favorable-than-initially-expected reference base for the fiscal variables.

The stronger-than-expected Q1 GDP outcome, in conjunction with encouraging signs for Q2 activity by the NBG high-frequency indicator (estimated GDP increase of c. 5.0% y-o-y in Q2:2022) point to an increased probability that FY:2022 GDP growth will inch closer to 4.0% compared to our previous estimate of 3.0%, despite the exogenous headwinds from energy and food induced inflation.

Greece Macro Flash: Economic activity gained momentum in Q1:2022 and remains in high gear in Q2, defying inflation headwinds
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