The end of the Greek recession appeared well within sight on Wednesday, as the country’s gross domestic product contracted at the slowest pace in six years in the second quarter of 2014, according to figures released by the Hellenic Statistical Authority (ELSTAT).
Analysts had forecast a shrinkage of between 0.5 percent and 0.3 percent, year-on-year. The economy actually grew 0.5 percent in comparison to the first quarter of the year – the first rise in six years according to an analysis by German bank Berenberg. The annual rate of contraction in the first quarter was 1.1 percent.
According to a paper by Eurobank, the 0.2 percent rate of contraction signals the end of the recession and is corroborated by a series of positive developments, such as the primary budget surplus, the return to credit markets earlier this year and improved competitiveness. Nevertheless, it cautions that even positive rates of growth in two or three consecutive quarters do not automatically imply a permanent return to recovery. For real growth, investment must increase, reforms must be instituted and the economy must gain in credibility.
ELSTAT said in its announcement that as of next month all EU member states will use a new methodology (ESA 2010) to calculate their GDP. Besides a change in the base year (from 2005 to 2010), the most important other difference for Greece will be the inclusion of spending on arms, which has been budgeted at 650 million euros this year, or 0.3 percent of GDP. The change is expected to increase GDP but the growth rate will not be affected.
Separately, the Finance Ministry said the primary budget surplus came to 2.28 billion euros in the January-July period – about 800 million higher than targeted.
“This achievement shows that public finances are being stabilized at a good level. This is a necessary condition for boosting the country’s negotiating position, the gradual return to credit markets, the gradual reduction in tax rates, the adjustment of policies that have been shown to be economically ineffective and socially unfair, and for finding realistic solutions for ensuring the viability of long-term debt,” said Alternate Finance Minister Christos Staikouras.