EME Macro/Strategy: Greece – patience is necessary

The economy is suffering deeply from the protracted disruptions in the tourism industry, but it is benefiting increasingly from FDI inflows and improvements in the manufacturing sector.
Third-quarter GDP was marginally above our expectations, thanks to household consumption moving back to positive yoy growth. However, monthly surveys show that consumption fell back in 4Q and will most likely stay weak in 1Q. As a result, we expect to see a deep contraction in real GDP until 2Q, when the base effects should at least bring GDP, on a yoy basis, back to positive territory.
In our view, a realistic expectation on the number of tourists reaching Greece in 2021E is one-third of 2019; alas, this keeps a lid on consumption and the aggregate profits for small companies. That said, we are beginning to see evidence of a pick-up in EU-related funds in the BoP, there is growing evidence of a strengthening and broadening FDI pipeline, and there are encouraging signs in the manufacturing sector. Also, importantly, as the unemployment rate appears to be at its peak and there is a modest wage increase trend, real aggregate incomes are rising rather briskly – around 3% – which supports consumption even in these unfavourable circumstances.