Greece Macro Flash: A second glance at Q3 GDP

Q3 GDP likely stronger than headline figure with the difference due to apparent excessive seasonality correction on tourism data


In the first estimate of Greece's GDP, it increased by only 2.3% q-o-q, s.a. in Q3:2020 (-11.7% y-o-y) compared with a euro area average of +12.5% q-o-q, s.a. and -4.3% y-o-y in the same period.

Services exports (mostly tourism) declined by an unprecedented 80.0% y-o-y (-39.2% q-o-q, s.a.) compared with -62.0% y-o-y in Q2:2020 (in constant price terms), subtracting 18.6 pps from annual GDP growth in Q3.

A closer look at GDP data suggests that the gap between seasonally and non-seasonally adjusted series of services exports was surprisingly large in both quarterly and annual terms.

The steady rise in the contribution of tourism to GDP over the past 10 years has led to an increasing adjustment for seasonality – especially on third quarter data – in order to smooth out the quarterly GDP variation. However, this pattern appears to have led to a downward bias in Q3 GDP estimate, due to the severe drop in tourism activity, following the Covid-19 shock, which should have necessitated a smaller adjustment.

NBG Economic Analysis estimates that the GDP drop in Q3 would have been significantly less (-8.1% y-o-y and +6.4% q-o-q, s.a. in Q3), had the adjustment been based on a 20-year average value of the seasonal adjustment factor for Q3, instead of the respective factor derived from more recent data; a result also in line with NBG's High-Frequency Indicator.

On a positive note, private consumption rebounded strongly (+15.3% q-o-q, s.a. and +1.0% y-o-y) adding 0.7 pps to GDP growth, supported by a generous fiscal stimulus – with a social safety net focus – which continued to stabilise labor compensation (-0.4% y-o-y in Q3 and -0.8% y-o-y in 9M:2020), resulting in only a mild increase of the unemployment rate to 16.9% in July-August from 15.9% in Q1:2020.

For the remainder of the year – assuming that the epidemic curve flattens in mid-December, permitting a partial lifting of restrictions – GDP is expected to decline by 2.1% (q-o-q, s.a.) in Q4 (-13.9% y-o-y, s.a., also in line with NBG's High-Frequency Indicator), leading to an annual GDP contraction of -9.8% in FY:2020. Adjusting for the seasonal overcorrection of Q3 GDP, as may occur in the GDP's second/third estimate, FY:2020 GDP would decline by c. 8.5% in FY:2020.

Greece Macro Flash: A second glance at Q3 GDP