ECONOMY

Capital Economics adjusts Greek recession to ‘only 8%’ for 2020

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The Greek economy is now projected to fare better than originally feared, with its gross domestic product shrinking by about 8%, against previous double-digit forecasts, according to a report issued on Thursday by Capital Economics.

"While the Greek economy is set to slump this year, it is becoming increasingly clear that the drop in activity will be much less severe than we previously anticipated. We now think that the Greek economy will shrink by 'only' 8% or so this year," the report stated.

"The Greek economy outperformed its eurozone peers in the first quarter, recording a 1.6% quarter-on-quarter contraction – much better than the 5% drop we had pencilled in or the slump in Spain, for example. Indeed, the lockdown weighed less on GDP than in other countries. Greek industry did not struggle as much as elsewhere in April, perhaps because it is less reliant on capital goods production," said the analysis.

Various indexes in the Greek economy are pointing to a faster rebound than anticipated: "While there remains great uncertainty around the pace of the recovery, data published over recent weeks have made us more optimistic; [they] suggest that since the government started easing containment measures, recovery has progressed faster than we had expected. But activity in Q2 will still have been dire; our best guess is that Greek activity dropped by around 17% q/q in Q2 (previously 22%)," said Capital Economics in its report.

"Assuming recent localized outbreaks in the north of Greece are contained, the recovery in Q3 will also be stronger than we anticipated. But the recovery is likely to run out of steam later in the year," it projected.

"We now expect the economy to contract by 8% in 2020 as a whole, compared to 15% previously. This is better than the 9.2% contraction seen in 2011, during the sovereign debt crisis. It’s also better than the IMF’s latest estimate but slightly worse than the middle point of the government’s estimated range," estimated the analysis of Capital Economics.

It added that "next year the economy is likely to recover much of this year’s losses, but we think it will only be back to around 80% of its 2007 size."