Buoyant exports boost Greece's economic recovery
The Greek economy entered 2018 in high gear, with GDP growth accelerating to +2.3% y-o-y in Q1:2018 – the strongest pace in 10 years.
Net exports were the key driver of growth, contributing +3.4 pps to annual GDP growth in Q1:2018, of which 2.4 pps corresponded to the contribution of total export growth and 1.0 pp to the decline in imports. The share of goods exports in GDP reached an all-time high of 18.5% in Q1:2018 and total exports increased to 32.4% of GDP, despite the still significant negative impact of capital controls on services revenue.
Inventory accumulation added about 0.5 pps to GDP growth in Q1:2018, also prompted by strengthened export demand, which led to increasing orders and production expectations, as indicated by the significant increase in Greece's manufacturing PMI – at a 17½-year high in Q1:2018.
The disappointing headline investment figures mainly reflect an adverse base effect from an extraordinary increase in spending on transportation and military equipment in Q1:2017 (i.e. mainly ships, vehicles and port machinery), with all other investment categories recording positive annual growth (increase in total investment spending excluding transportation equipment of +10.5% y-o-y in Q1:2018).
Residential construction posted its first annual expansion in 7 years (+10.7% y-o-y in Q1:2018), potentially signaling the end of the longest adjustment cycle in this market.
Private consumption remained subdued (-0.4% y-o-y), mainly due to still significant fiscal pressure in this quarter, but it is encouraging that it has increased by +0.3% s.a. q-o-q for the first time since end-2016, indicating some responsiveness to improving confidence.
NBG Economic Analysis' "high frequency indicator" of economic activity suggests an acceleration in GDP growth to above 2.7% y-o-y in Q2:2018. The risk of higher oil prices, in conjunction with increasing signs of a slowdown in the euro area economy – with Greece's major trading partners, such as Italy, potentially underperforming – are the main reasons for maintaining unchanged our GDP growth forecast for 2018 at 2.0% y-o-y.