Buoyant exports compensate for stubbornly weak investment
Greece's GDP recorded a solid expansion of +1.6% y-o-y in Q4:2018 – a 7th consecutive quarter of positive growth – bringing annual growth in 2018 to 1.9%.
Net exports were the main driver of economic activity, adding 2.7 pps to GDP growth in Q4:2018. Goods exports increased by a solid 8.4% y-o-y in FY:2018, remaining on a steady upward trend for a 9th consecutive year. Private consumption expanded steadily by 1.0%, on average, in 2018, reflecting the strong increase in employment of 2.0% y-o-y in 2018, leading the unemployment rate to 18.0% by year end.
Gross fixed capital formation (GFCF) declined by 27.2% y-o-y in Q4:2018 (-12.0% y-o-y in FY:2018) due to the sharp contraction in non-residential construction (-36.5% y-o-y in Q4:2018) and a sizeable adverse base effect from an extraordinary increase in spending on transportation equipment in Q4:2017, which led to a compression of this investment category by 72.5% y-o-y in Q4:2018.
The disappointing investment outcome is puzzling, and likely temporary, especially when taking into consideration the increased pre-tax profitability of Greek businesses (increase in gross operating surplus (GOS) and mixed income of 2.2% y-o-y in FY:2018 and of +4.5% y-o-y in Q4:2018 – the strongest pace in 11 years), rising capacity utilization levels and favorable business prospects.
Weak investment figures reflect a two-tiered business structure in which investment by more competitive corporates, mostly larger and more extrovert, is offset by the continuing divestment of stressed/loss-making firms (smaller SBs and domestically oriented SMEs).
Looking forward, broadly constant GDP growth is expected in 2019 (c. 2.0% y-o-y), with accelerating private consumption – on the back of increasing disposable income and declining unemployment – and higher investment offsetting the losses from slowing external demand.