Greece Macro Flash: The underlying growth momentum is stronger than suggested by Q1:2023 GDP data, with activity accelerating to 2.5% in Q2

Greece’s GDP growth slowed, but remained on a solid upward trend in Q1:2023, exceeding by a significant margin the euro area average

Economic activity slowed but remained on a solid upward trend in Q1:2023: Greek GDP increased by 2.1% y-o-y and exceeded by a significant margin – for an 8th consecutive quarter – the respective Euro area average (+1.0% y-o-y in Q1:2023).

The deceleration in GDP growth from 4.8% y-o-y in Q4:2022 mainly reflects:

  • the unwinding of very favorable base effects that bolstered activity in 2022, after the full lifting of Covid-related restrictions, 
  • a 1.2-pp drag from a normalization in inventory levels, following the uncertainty-driven spike in H2:2022. This factor should be considered once-off, and unlikely to continue during the remainder of the year, and 
  • tighter monetary and fiscal policies.

Private consumption increased by a solid 2.9% y-o-y (+1.4% q-o-q, s.a.), on the back of supportive labor market conditions and declining energy prices. Specifically, the real compensation of employees increased by 1.3% y-o-y in Q1:2023, following a drop of 1.8% y-o-y in FY:2022, reflecting an estimated pick-up in nominal wages (by nearly 5%) while annual employment growth was 1.4%.

Non-wage income of households, as well as corporate profits, were also buoyant as the economy-wide gross operating surplus and mixed income increased by 9.3% y-o-y in Q1:2023.

Reflecting strong confidence levels and attractive returns, gross fixed capital formation (GFCF) increased by 8.2% y-o-y in Q1:2023, to 14.5% of GDP (annualized basis), on the back of rising construction activity (+19.6%  y-o-y), led by residential investment (up by +48.4% y-o-y).

Net exports surprised positively with a contribution of +0.9 pps to annual GDP growth in Q1:2023 – marking a sharp reversal from the 2.8-pp drag in FY:2022 growth – led by a strong performance by both goods (+10.6%  y-o-y) and services exports (+6.2). These developments are in line with our projection for a rapid improvement in the current account deficit this year.

Boding well for the remainder of the year, survey and conjunctural indicators are consistent with a pick-up of activity in the following quarters.

NBG projects GDP growth of 2.5% y-o-y in Q2:2023, and nearly 3.0% for FY:2023. This outcome will also reflect supportive base effects, related to higher energy costs and weakened economic sentiment in 2022, combined with a strong pipeline of private and RRP-financed investment projects.

The main downside risks to the above estimate relate to a potential decline in economic sentiment in the event of a weakening of euro area activity, due to the delayed impact of the ongoing monetary policy tightening, and a recurrence of energy market tensions, as a result of geopolitical factors.


Greece Macro Flash: The underlying growth momentum is stronger than suggested by Q1:2023 GDP data, with activity accelerating to 2.5% in Q2