Greece Inches Towards Small Recovery
Almost the only good news in our last quarterly report was that after six years of recession, the battered Greek economy was set to see its first year of positive growth in 2014. Three months on, we are still expecting positive growth in 2014, but the numbers are not as good as they were. We now estimate that the recession in 2013 was deeper than hoped (-5.1%, down from -4.4%), and we forecast that this year's recovery will be weaker, at +0.5% (down from +1.1%). In few words, this is because private and public sector deleveraging is still going on, investment is at a standstill, and only net exports are able to provide some small and rather uncertain stimulus given the fragile nature of the eurozone recovery. Household expenditure, the real driver of the Greek economy, remains deeply depressed. Purchasing power is being held in check by the grim employment outlook. Youth unemployment (under 25s) hit a staggering 59.0% in November last year.
Given that younger workers typically have a high propensity to consume compared with their older counterparts, this extremely high youth unemployment rate is a major impediment to consumer demand. The severity of domestic demand destruction, political instability, and lingering tail risks of Athens abruptly leaving the eurozone, have provided the corporate sector with additional justification for holding back from large-scale fixed investment. Even the small improvement in Greece's external position has resulted largely from a collapse in imports rather than from substantial gains in export competitiveness. This means that we remain pessimistic about the country's medium-term prospects. We believe Greece will manage average GDP growth of only 1.4% in the 2014-2018 period.
Greece's outward-looking shipping sector is partly protected from the disappointing domestic economy. European transit freight demand plays an important part in determining overall activity levels, as does investment in...