Estimates now for contraction of over 10%

Estimates now for contraction of over 10%

Forecasts regarding the depth of the Greek economy’s contraction this year and its course in 2021 have changed for the worse after the tightening of measures to fight the second wave of the coronavirus pandemic.

According to economists Kathimerini has spoken with, the most likely scenario now is the adverse one, and they speak of a slump of 10% or more for 2020, producing a W-shaped recession with a second nadir during the fourth quarter. The 2021 rebound is also at risk.

Melanie Debono, European Economist at Capital Economics, estimates a small positive gross domestic product increase in Q4 around 1.5% on a quarterly basis. “The recent rise in virus cases in Greece and associated restrictions means that the risks to our Q4 forecast are already to the downside. If the government instates a national lockdown, even if “lighter” than during the spring, GDP may not expand at all in Q4 and could even contract. This is because the lockdown will hit domestic demand again at a time when the outlook for external demand is still extremely weak – there are many signs that the recovery in key trade partners has already gone into reverse and many countries from which most tourists come to Greece (namely Germany and the UK) are seeing a similar surge in cases,” says Debono.

“As a result, if Q3 GDP growth isn’t higher than our forecast of +7.5% q/q and a lockdown is put in place in the coming days, then GDP over 2020 as a whole would shrink by more than the 8% contraction we currently have pencilled in,” she forecasts.

“Looking further ahead, a stagnation (or contraction) in Q4 would provide an unfavorable base for GDP growth in 2021 so it would also put our current below-consensus forecast for 3.5% GDP growth next year into jeopardy,” concludes the Capital Economics analyst.

Ada Economics founder and Wood & Co chief economist Raffaella Tenconi says the estimate on the year’s recession was a while back adjusted to 9.3%. “The data keeps on getting worse, so recession will probably be around 10% given the second wave globally. In my view the more important question especially for Greece is whether the improvement trend is still favorable Covid aside. It appears that a foreign direct investment pipeline is still intact, so that is encouraging. However, I think 2021 will be a year of meager recovery in Greece as it will be in Europe more broadly,” she tells Kathimerini.

The forecasts by Carsten Brzeski, Eurozone Chief Economist and Global Head of Macro for ING Research, are even more gloomy: “The lockdown plus the lockdowns in other countries will definitely hit the Greek economy. There is a high risk of a double dip, i.e. a contraction of the economy, in the fourth quarter. As a result, the -12% we previously forecasted will be deeper but we haven’t yet updated our numbers. Given that there could be more lockdowns in Q1 2021, the recovery in 2021 will also be weaker and it will probably take until late 2022/early 2023 before the economy returns to its pre-crisis level. Obviously, a lot depends on the development of a vaccine. The earlier the better for the economy,” he argues.

Scope Ratings is running two scenarios (baseline and stressed), defined by the timing and shape of economic recovery in the activities of various industry sectors, says its Associate Director for Public Finance, Jakob Suwalski.

“The downside economic scenario, with the GDP contracting by 10.8% this year and a weak recovery of only +2.5% next year, considers the case that a second wave of coronavirus contagion in second-half 2020 results in the re-introduction of strict containment measures by the fourth quarter, which also causes a much slower recovery in 2021. Current pandemic developments are negative, with the related uncertainty likely to increase over the next weeks, with adverse effects on the economic outlook,” he explains to Kathimerini.

“However, Greece’s longer-term economic outlook will be contingent on the successful absorption of the Next Generation EU recovery funds – of which Greece is set to be one of the biggest beneficiaries,” he notes.

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