Author: Paolo Pizzoli
“The tourism-related service sector is a lingering point of vulnerability for the Greek economy” estimates ING Think.
The Economic and Financial Analysis group of ING, in its article, notes:
“Greece suffered the Covid-19 shock with somewhat of a delay. Having been little hit by the infection in the first quarter, it fully felt the shock over the second when the economy contracted by an unprecedented 14% quarter-on-quarter. This reflected the effect of containment measures on an economy particularly vulnerable due to the very high share of tourism activities. Social distancing and restrictions on mobility weighed heavily on both domestic demand and exports of tourism services. We suspect the same factors will limit the scope for a rebound in 3Q20 GDP comparable with what has been seen in other peripheral countries.”
The author believes that the second lockdown “should be enough to depress growth through the domestic demand channel. Recently published August employment data suggests that support measures, while backing job retention, could not stop a fall in employment which went together with an increase in inactivity. With the unemployment rate at 16.8%, domestic demand looks set to act as a drag on growth in the fourth quarter of this year. We are currently pencilling in an 8% QoQ rebound in 3Q, and a 2% QoQ fall in 4Q20, with downside risks for the latter.”
Furhter more, the author sees uncertainty linked to the public finance developments in case state guarantees, part of the emergency Covid-19 measures, should be activated.
On a positive note, the article underlines that funds deriving from the EU Recovery and Resilience Facility will flow in Greece in 2020.
“Given the good share of funds Greece is entitled to, these might act as a growth accelerator over the second half of next year. Against this backdrop, it will be extremely interesting to see whether the projects financed and the related reforms will make Greece more attractive in the eyes of foreign investors. If this is the case, chances are that growth-wise, 2022 will turn out better than 2021.”