Greece’s GDP posts record slump hurting decade of hard-won gains

Greece’s GDP shrank 14% between April and June, marking the steepest quarterly contraction in at least 25 years and threatening to undermine a decade of hard-won gains for the recently bailed-out economy.

The record slump, announced by statistics service ELSTAT, confirmed expectations for a sharp contraction over the second and third quarters, induced by the lockdown that authorities imposed in March to contain the coronavirus.

The data showed tourism, the economy’s main driver, had taken a severe hit from COVID-related travel restrictions, and among eurozone countries only Spain’s economy, with an 18.5% drop in gross domestic product, performed worse in the second quarter.

Tourists from Britain started arriving in Athens from July after pandemic-related restrictions were lifted. Greece is a popular destination for UK vacationers and around 3.5 million Britons visited last year, the second highest per country after Germany.

Greece lost about a quarter of its output during its 2010-18 debt crisis, which rocked the eurozone and forced it into bailouts in exchange for unpopular austerity-focused reforms.

However, during that period the economy’s worst quarterly contraction, in the first three months of 2009, was a comparatively modest 4.7%, according to ELSTAT. Greece emerged from its third bailout in August 2018.

It still has the highest debt to GDP ratio and was looking forward to a strong recovery this year, but with the impact of the pandemic the economy is now expected to shrink up to 10% in 2020. On an annual basis, it contracted 15.2% in the second quarter.

Last year, tourism revenues totalled 19 billion euros. The sector accounts for about 18 per cent of GDP and one in five jobs.

Greece did not start easing travel restrictions until May, just before its peak tourism season kicked in, and in the second quarter exports of services - which include tourism receipts - fell 48.3% from the first.

“Mediterranean countries have suffered a huge blow. In the main European cities, including Athens, there are no tourists at all,” Grigoris Tassios, president of the Greek hotels association told Reuters.

“There were zero tourism revenues in the second quarter,” he added, forecasting 3 billion euros in 2020 as a whole.

The data also showed that consumer spending dropped 11.3% as business activity came to a standstill, while bank deposits rose.

Data from electronic transactions and tax receipts would help offset the impact on tourism, the government said, reaffirming its estimate for an 8% GDP contraction this year. Prime Minister Kyriakos Mitsotakis has forecast a strong economic rebound next year.

Nikos Magginas, chief economist at National Bank, was also relatively upbeat, saying Greece’s economic rebound had been faster than other southern European countries once restrictions had been lifted.

But hoteliers’ projections were gloomier.

“We will need three years to return to the 2019 tourism performance,” Emannuel Giannoulis, vice president of the hoteliers association said.

Meanwhile, Greece is ready to spend part of its cash reserves to support its armed forces as early as this year, the country’s finance minister said on Monday, after years of belt-tightening in defence spending.

During its decade-long debt crisis, which erupted in late 2009, Greece slashed its defence spending under the terms of three international bailouts that helped it stay afloat. Greece emerged from its third bailout in August 2018.

In an interview with Alpha TV, Finance Minister Christos Staikouras said that his mandate includes “supporting the armed forces’ prevention force”.

He made the comments as tensions between Greece and its NATO Turkey have escalated over energy resources in the eastern Mediterranean region.

“We, the finance ministry, will do everything possible to support the government’s decisions in this area,” Staikouras said.

He said that the government’s strategy does not only concern arm purchases and will unfold over the next years starting in 2020, without providing a figure on the money that could be invested or any further details.

“It depends on the government’s and the defence ministry’s orders on certain priorities,” he said.

Greece has created a cash buffer of 34 billion euros ($40.6 billion) from unused bailout funds and money raised from markets. The country was looking forward to an economic recovery this year but the coronavirus pandemic has turned its expectations upside down and the government now sees its economy shrinking up to 10%.

Reuters