Greek economy contracted in third quarter amid capital controls

Greek economy contracted in third quarter amid capital controls

Greece’s economy shrank in the third quarter by less than expected as the impact of capital controls introduced at the end of June was not as severe as analysts had forecast.

Gross domestic product contracted 0.5 percent in the three months to September 30, compared with a rise of 0.4 percent in the second quarter, revised down from an earlier estimate of 0.9 percent growth, the Hellenic Statistical Authority in Athens said Friday. A Bloomberg survey of three economists forecast a contraction of 1 percent in the third quarter.

Greek Prime Minister Alexis Tsipras was catapulted to power in January on a promise to end austerity only to capitulate to creditors’ demands after the freezing of aid from the euro area brought Greece’s financial system to the brink of collapse as deposit outflows forced him to impose capital controls.

The controls were partly responsible for a 7 percent contraction in the domestic fuels market demand in the third quarter, Greece’s largest refiner Hellenic Petroleum said on Thursday.

Capital controls also affected working capital financing in the period as open credit from crude oil suppliers was significantly reduced, the company said.

Revenue at small firms, which account for most of Greek business, fell by an average 48 percent in the first two weeks of the capital controls, according to a July survey of 1,005 companies by the Small Enterprises Institute of the Hellenic Confederation of Professionals, Craftsmen and Merchants, known by its Greek acronym Gsevee.

For a third of them, sales shrank by more than 70 percent as consumption contracted by 50 percent, or 3.8 billion euros, the survey found. Many enterprises were unprepared for the consequences of the controls and the three-week closure of banks, Gsevee said.

A July parliamentary report estimated capital controls will cost the economy between 4 billion euros and 10 billion euros this year.

Greece’s economy may shrink by less than 1 percent in 2015, probably by around 0.8 percent, Greek Economy Minister George Stathakis said on Thursday. That estimate is much better than initial expectations for a contraction of around 3 percent and more recent estimates for a fall in economic output of around 1.5 percent, he said.


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