Significant upward revision in our GDP growth forecasts for 2022 to 5.7%, as fiscal measures and private sector resilience cushioned the inflationary shock on the real economy

Greece’s GDP growth outpaced consensus estimates in Q2:2022, reaching 7.7% y-o-y (+1.2% q-o-q, s.a.) – remaining one of the highest in the euro area – following an upwardly revised 8.0% y-o-y in Q1:2022 (initial estimate of 7.0%).
▪ Private consumption had a massive 7.7-pp contribution to Q2 GDP growth in y-o-y terms, on the back of: i) A strong labor market performance, reflected in employment growth of 6.4% in Q2:2022.
ii) Additional fiscal measures announced in April in order to cushion the impact of the intensifying energy shock. iii) A resurgence in domestic spending on services, following the full lift of Covid-19 restrictions. iv) Higher use of liquidity reserves, with household bank deposits increasing by €1.1 bn in H1:2022 (+€4.2 bn in H1:2021).
▪ Business profits and other earnings from unincorporated business activity accelerated to 16.6% y-o-y in Q2:2022 from 11.1% y-o-y in Q1, reaching the highest level, in absolute terms, since H1:2011.
▪ Boding well for future growth, gross fixed capital formation rose by 8.7% y-o-y in Q2, equivalent to 13.0% of GDP from 10.5% in 2019.
▪ Net exports contributed 0.7 pps to Q2:2022 GDP growth, as buoyant tourism-led services and goods exports (+20.8% y-o-y) added 7.1 pps to y-o-y GDP growth in this quarter, outweighing the drag from increased imports.
▪ During the past five years exports of goods and services repesent, on average, 36% of GDP, steadily increasing their share from 24%, on average, in 2000-2016. ▪ Despite the elevated energy risks for the remainder of the year, the strength of high frequency indicators in Q3 and increased fiscal support – including the recent announcements in TIF – suggest that FY:2022 GDP growth will reach 5.5-6.0% even under a scenario of significant drop in activity in Q4 (-1.8% q-o-q, s.a.).
▪ Nominal GDP grew by an outstanding 16.8% y-o-y in Q2:2022 from 17.5% in Q1:2022, heading to an estimated FY:2022 output level of €207 bn, last observed in 2011.
▪ Our updated estimate of nominal GDP growth of 13.5% in FY:2022, along with the overperformance against the Budget targets in 7M:2022, are expected to lower the public debt-to-GDP ratio to 170% by end-2022 – 36 pps below its peak in 2020.
▪ For 2023, with energy prices expected to remain high, real GDP growth is projected to be of the order of 2.0-2.5%.
Significant upward revision in FY:2022 GDP growth forecasts to 5.7% despite the intensifying
inflationary shock in Q2. Greece’s GDP growth outpaced consensus estimates in Q2:2022, reaching 7.7% y-o-y (+1.2% q-o-q, s.a.) – remaining one of the highest in the euro area – following an upwardly revised 8.0% y-o-y in Q1:2022 (initial estimate of 7.0%). Economic activity has remained on a steady upward path for 8 consecutive quarters (average expansion of 2.7% in s.a. q-o-q terms, in this period), with H1:2022 GDP exceeding its pre-pandemic level in H1:2019 by 4.6% (or €4.2 bn). Private consumption had a massive 7.7-pp contribution to Q2 GDP growth in y-o-y terms, increasing by 11% y-o-y (+2.2% q-oq, s.a.), overcoming the drag from accelerating inflation (11.2% y-o-y in Q2:2022 from 7.4% in Q1) and looming geopolitical tensions. Consumer spending has been bolstered by: i) strong labor market performance, reflected in employment growth of 6.4% y-o-y in Q2:2022, that corresponded to 200K additional employees in H1:2022 compared with the same period in 2021; ii) the new fiscal measures announced in April in order to cushion the impact of the intensifying energy shock, with €2.4 bn of support activated in Q2:2022; iii) a revival in domestic spending on services of nearly 20% (constant price terms), following the full lift of Covid-19 restrictions (as measured by the difference between retail sales volume growth, excluding fuels,
of 1.0 % y-o-y in Q2:2022 and total private consumption growth of 11% y-o-y in the same quarter); and iv) the higher use of liquidity reserves, with household bank deposits increasing by only €1.1 bn in H1:2022 compared with a €4.2 bn increase in H1:2021 under more subdued labor market conditions. Boding well for future growth, gross fixed capital formation rose by 8.7% y-o-y in Q2, equivalent to 12.9% of GDP from 10.7% in Q2:2019. Higher spending on new machinery and equipment – 25.4% y-o-y in Q2:2022 – added 6.8 pps to total GFCF growth in this quarter. Construction activity accounts for the remaining GFCF growth – with residential construction up by 16% y-o-y and non-residential activity by 10.2% y-o-y. Inventories declined sharply, subtracting 1.6 pps from GDP growth, reflecting stronger than anticipated aggregate demand and the need for their rebuilding looking forward. The slightly positive contribution (+0.7 pps) of net exports to Q2 GDP annual growth masks a very strong export performance. During the past 5years exports of goods and services represent, on average, 36% of GDP, steadily increasing their share from 24%, on average, in
2000-2016. Rising imports of goods and services (+15.5% y-o-y in constant prices in Q2:2022) reflect the strong growth of aggregate demand, with the high income elasticity reflecting shortages built up during the pandemic years, as well as the high import content of the economy. The income-side decomposition of GDP reveals a parallel increase in labor’s and capital’s income that reflects the broadbased improvement in economic conditions. Total compensation of employees increased at a robust pace of 7.8% y-o-y in Q2:2022, as in Q1, whereas business profits and other earnings from unincorporated business activity (asapproximated by the gross operating surplus and mixed income) accelerated to 16.6% y-o-y in Q2:2022 from 11.1% y-o-y in Q1, reaching in H1:2022 the highest level, in absolute terms, since H1:2011, underlining their capacity to absorb higher input costs. The key growth drivers of the Greek economy remain intact in
Q3. Data from inbound-tourism arrivals by air and bookings until early-September suggest that FY:2022 tourism revenue will climb to a new all-time high. Economic sentiment, despite a further weakening to 101.3 on average in July-August, from 105.1 in Q2, remained in expansion territory until August, while business turnover posted another impressive expansion of 44% y-o-y in July, similar to Q2 (+24% and 30% y-o-y, respectively, excluding the direct impact on turnover of energy-related manufacturing sub-sectors). Google mobility indicators also remained strong in July-September, exceeding by 13 pps their average level in the same period in 2021, compared with a 32 pps increase in Q2:2022. New measures announced in the Thessaloniki International Fair
(TIF) add c. €1.0 bn to fiscal support in Q4:2022, with the gross value of measures for FY:2022 now exceeding €13 bn. Furthermore, another €3.0 bn of additional fiscal stimulus hasbeen announced for 2023 and beyond. The largest part of this support is financed by higher revenue from carbon emission rights trade and a clawback on windfall profits of energy producers. Moreover, tax revenue recorded a net overperformance of €2.5 bn vis-à-vis Budget targets in 7M:2022, bolstered by the rapid expansion of the tax base in both real and nominal terms.
Despite the increased energy-related support to the privatesector, the State Budget’s primary deficit has been lowered toonly €1.2 bn in 7M, compared to €9.1 bn in 7M:2021, with a  Budget target of €5.8 bn in 2022. The fiscal policy stance, in its broadest definition, including the estimated value of support through electricity subsidies, is envisaged to provide a net stimulus of 0.5% of GDP to the economy in 2022 compared to a 1-pp drag in 2021. NBG’s high frequency indicator of economic activity − modified to deal with increasing inflation-related biases on nominal variables − points to a stabilization in Q3:2022 GDP in s.a. q-o-q terms, still implying a solid 5% y-o-y growth in this quarter. However, energy risks remain elevated, as natural gas prices in the spot market have doubled in July-August, compared to their average level in Q2, while market-based forecasts for Q4:2022 and Q1:2023 have also been revised upwards, reflecting the specter of energy shortages in the EU in the coming winter. FY:2022 GDP growth is likely to reach 5.5-6.0%, even when conservatively assuming a sharp contraction in Q4:2022 GDP of nearly 2% q-o-q, caused by escalating energy pressure and a fading-out of tourism-related support. Nominal GDP grew by an outstanding 16.8% y-o-y in Q2:2022, from 17.5% in Q1:2022 − with a GDP deflator of 8% y-o-y, on average, in H1:2022 − reaching €51.5 bn, the highest quarterly level since Q2:2011, corresponding to an updated FY:2022 estimate of €207 bn for the first time since 2011. Our updated estimate of nominal GDP growth of 13.5% in FY:2022, along with the overperformance against the Budget targets in 7M:2022, are expected to lower the public debt-to-GDP ratio, to 170% by end- 2022, around 36 pps below its peak in 2020. For 2023, with energy prices remaining relatively high – 86 USD/barrel for crude oil (brent) and 190 €/MWh for European natural gas (Dutch TTF) – real GDP growth is expected to be in the order of 2.0-2.5% compared with euro area growth estimates of 0.9% (ECB staff macroeconomic projections,