GDP deceleration, despite fiscal stimulus, as net exports are a drag on growth
Greece's recovery continues, with GDP increasing by 1.3% y-o-y in Q1:2019 (0.2% s.a. q-o-q) for an 8th consecutive quarter, albeit continuing to decelerate from 1.5% y-o-y in Q4:2018 and 2.1% y-o-y in Q3:2018. Domestic demand contributed more than 3.0 pps to GDP growth, offsetting a sizeable 1.8 pp drag from net exports.
Consumer spending continued to respond positively to the supportive labor market conditions and increased consumer confidence, expanding at a broadly stable pace of 0.8% y-o-y. The contribution of private consumption to GDP growth is estimated to increase further during the course of the year (increase in private consumption of 1.5% y-o-y in FY:2019), on the back of improving confidence and a higher-than-initially-anticipated fiscal stimulus.
Gross fixed capital formation (GFCF) rebounded in Q1:2019 (7.9% y-o-y), contributing 0.9 pps to annual GDP growth in this quarter, mainly on the back of an annual increase of 10.9% y-o-y in non-residential construction in Q1:2019, due to an acceleration in public investment activity and higher investment on transport equipment (19.0% y-o-y).
Exports of goods and services grew at their weakest pace in 2½ years, since a healthy expansion in exports of services of 8.7% y-o-y (driven by tourism and shipping) in Q1:2019 was counteracted by a contraction in exports of goods of 0.7% y-o-y; the first since Q4:2016 in the face of slowing demand in key exporting markets (mostly in the euro area).
Production side data highlight a strong correlation between export activity and business sector performance. Specifically, business profitability, approximated by the operating surplus and mixed income generation in the economy, contracted by 0.3% y-o-y in Q1:2019, for the first time since Q3:2016, indicating a very high correlation with value added generated in export-oriented sectors, especially in industry, which also slowed considerably in Q1:2019.
NBG Economic Analysis estimates that GDP growth will reach 1.8% y-o-y in FY:2019, remaining broadly constant compared with FY:2018, with key upside risks to this scenario relating to a further improvement in business and consumer sentiment in the coming months, compounded by an additional sustainable compression in country risk.