EME Macro/Strategy: Greece – so far, so good, a preview of the next leaps forward

We visited Athens recently, to get a fresh perspective on the economy, and exchange views with locals and policymakers. The direction of the economy, in our view, remains well on track with our expectations: investment, sustained by the EU convergence funds and FDI, is unfolding, and is strong evidence that the economy is competitive, in our view. The Mitsotakis government remains active in working to advance reforms across many areas, so our fundamental assessment that real GDP potential is around 3% is unchanged. That being said, in the immediate future, activity is lacklustre and the Eurozone economy is stagnating. Limited public funding needs and a competitive growth backdrop lead us to expect Greek sovereign bonds yields to tighten further, well beyond what the current sovereign credit rating would imply, heading for proximity to French bond yields. We see three big productivity leaps that Greece needs to take in the coming years: first, the consolidation of its micro companies; second, the upgrading of the stock of real estate; and third, increasing human capital investment across the age distribution.