taking stock of what has been achieved so far

The economic recovery has begun in Greece, with 1Q17 GDP exceeding expectations thanks to positive consumption growth, a rebound in investment and decent exports. We have not changed our year-ahead GDP projections of c.1% growth in 2017/18E, but an overshooting to 1.5% growth looks plausible, in our view, whilst much higher growth, closer to 3%, continues to appear to us as highly unlikely in the near term due to weak balance sheets. Fiscal austerity is continuing for one more year, but it is no longer the main driver of GDP as the private sector continues to smooth consumption by eroding savings. Capacity constraints are showing in some areas and privatisation is advancing, supporting positive capex expansion. Job creation supports 1-1.5% yoy growth in consumption, but the savings rate is heavily negative, at -7%. We see a stable political environment ahead (elections scheduled for 2019), but we expect the next Troika review to remain lengthy and difficult. Long-term 10-year sovereign bond yields are trading in a range of 5-5.5% this year, moving down to 4% in 2018E.