GDP growth slowed to 2.1% y-o-y in Q3:2023, from 2.6% in Q2, but outpaced the euro area average (0.0% in Q3) by a wide margin, and for a 9th consecutive quarter.
The Q3 outcome was weaker than our initial projection of Q3 GDP growth (c. +3.0% y-o-y, revised to 2.6% in November) due to the following factors:
- lower government expenditure (both consumption and PIB) resulting in a fiscal drag of c. ½ pp,
- a smaller-than-initially expected export contribution (+0.4 pps to Q3 growth from 1.1 pps in H1:2023), especially from goods, reflecting a sharper-than-previously anticipated slowdown in Europe,
- a smaller carryover effect of +2.1% y-o-y due to a downward revision in H1:2023 GDP.
The deceleration in GFCF to 4.9% y-o-y, from 8.7% in H1:2023, reflects stagnant non-residential construction (+0.6% y-o-y, a 3-year low), mainly, due to delays in PIB spending.
Inventory stockpiling by the business sector had a significant, but deceptive, 1.4-pp contribution to Q3 GDP growth, pointing to healthy business activity, but the net impulse had an offsetting counterpart from higher goods imports (a 1.1-pp drag on Q3 GDP growth).
The negative impact on production, from the catastrophic flood in central Greece was rather limited (-0.1% of total GVA), with an impact of c. -0.3 pps of GDP expected in Q4, but it will be more than fully offset by already approved government support programs.
Looking forward, GDP is expected to accelerate to 0.7% in s.a. q-o-q terms in Q4 – implying FY:2023 GDP growth of 2.1%, due to: i) increased government expenditure and capital spending deferred from Q3, and ii) accelerating employment growth to 3.5% y-o-y in October from 0.9% in Q2, in part due to an extended tourism season and a pick-up in hiring in other services and trade.
The acceleration in RRF-financed capital spending, the pick-up in euro area growth to 1.2% y-o-y in 2024 and the positive impact of the upgrade to investment grade on risk appetite and financial conditions, bode well for stronger growth in FY:2024, estimated at 2.7% y-o-y.