Hypostat 2015

EU 28 Country Reports
Greece
By Calliope Akantziliotou, Bank of Greece
Macroeconomic Overview
In late 2014, there were indications that the Greek economy had overcome the
recession; positive growth was expected for 2015 and a further pick-up in 2016.
The rate of decline of real GDP decelerated in 2013 and in the first quarter of 2014,
with year-on-year growth returning to positive territory in 2014 for the first time since
2007. Specifically for 2014 as a whole, real GDP growth showed slightly positive
momentum of 0.8% against -3.9% in 2013, -6.6% in 2012, -8.9% in 2011 and -5.3%
in 2010. These projections have since been revised downwards, a development that
for the most part is attributed to the uncertainty prevailing since the last months of
2014, associated with the political standoff that ultimately led to a snap election and,
later on, due to the dragging-on of negotiations between the Greek Government and
its international creditors. Consequently, although provisional seasonally-adjusted
estimates published by the Hellenic Statistical Authority (ELSTAT) indicated that real
GDP continued to increase at a rate of 0.4% y-o-y in Q1 2015, supported by the
exceptional performance of gross fixed capital formation (+14.6% y-o-y) and the
rise in private consumption (+1.6% y-o-y), the rate of increase was significantly
lower compared to 1.3% in real terms, y-o-y in Q4 2014. Investment in construction
continued to decline in Q1 2015 by 23.4% y-o-y, though at a decelerating rate. GDP
is expected to contract in H2 2015 as the result of the imposition of capital controls
and the sharp rise in uncertainty. The magnitude of the contraction is difficult to
quantify. Overall, the cumulative decline in real GDP since the onset of the crisis
amounts to 26.5% and unemployment stands at 26.5% in 2014 with the long-term
unemployed accounting for over 64.0%.
According to provisional seasonally-adjusted estimates published by ELSTAT, on the
demand side, private consumption in 2014 increased by 1.4% against a continuous
decrease in previous years, i.e. in 2013, 2012 and 2011 private consumption fell
in real terms by 2.2%, 7.9%, and 10.7% respectively. Government consumption
decreased modestly by 0.8% compared to the decline rates in 2013, 2012 and
2011 of 5.2%, 6.6% and 6.3% respectively, while gross fixed capital formation
increased by 2.9% against a significant fall of 9.5%, 28.6% and 17.0% in 2013,
2012 and 2011 respectively. On the supply side, gross value added (at basic and
constant prices) in 2014 slightly increased by 0.5% against a continuous decrease
in previous years, i.e. in 2013, 2012 and 2011 gross value added fell in real terms
by 3.7%, 5.8%, and 8.9% respectively. Similarly, on the income side, the annual
national accounts’ figures for 2014 showed a 0.6% increase in remuneration of
employees against -10.7% in 2013, -9.8% in 2012 and -9.5% in 2011.
According to the Labour Force survey (LFS), an increase in employment rates
was recorded in 2014 by 1.3% against significant deceleration of their decline
in 2013 (-4.0%) compared to 2012 (-8.0% in 2012, -5.9% in 2011 and -3.4%
in 2010), indicating a rebound against the strong negative trend of the previous
five years. For Q1 2015, LFS data suggest a quasi-stabilisation of unemployment
trends. The unemployment rate decreased in 2014 and stood at 26.5% compared
to 27.5% in 2013, with an annual rate of decline of 3.5% compared to significant
increases in the previous years (on average by 12.5% in 2013, 36.8% in 2012,
40.3% in 2011 and 32.6% in 2010). According to the latest available figures from
LFS, in Q1 2015 the unemployment rate rose to 26.6% compared to the previous
quarter (26.1%), nevertheless representing a slight decrease compared to
27.8% in the corresponding quarter of 2014 (-5.2% y-o-y, equating approximately
1.272 million people). In addition, the unemployment rate for females (30.6%) is
considerably higher than the unemployment rate for males (23.5%) in Q1 2015,
while the highest unemployment rate is recorded among young people in the
15-24 years age group (62.0% and 49.6% on average for young females and
males respectively). Due to rising uncertainty and deterioration of the economic
climate, unemployment rates are expected to rise.
Inflation in Greece in 2013 and 2012 dropped below the euro area average for
the first time since Greece’s entry into the euro area. Deflation has been recorded
since March 2013. Whilst the price decrease moderated in the first half of 2014,
it accelerated during the second half of 2014, mainly due to the fall in oil prices.
Headline inflation continued its steady decelerating trend throughout 2014 and
2013 falling from +3.1% in 2011 and +1.0% in 2012 to -0.9% in 2013 and -1.4%
in 2014, (-1.4% y-o-y in May 2015), while core inflation (HICP excluding energy
and unprocessed food) has been in negative territory since September 2012 and
dropped to -1.1% 2014 but with a decelerating decline compared to -1.9% in 2013
(-0.2% y-o-y in May 2015). The GDP deflator fell by 2.6% in 2014 (2.3% in 2013)
reflecting ULC declines, adjustments to profit margins and the fall in energy prices.
Over the past five years, Greece has made considerable progress in dealing with
its twin – fiscal and external – deficits. However, the programme target of primary
surplus of 1.5% of GDP was not achieved and the general primary government
outcome was close to zero in 2014, mainly caused by a shortfall in revenue, in
particular towards the end of 2014. In 2014 the general government recorded a
primary surplus of 0.4% of GDP compared to a primary deficit of 8.3% of GDP
in 2013. After the progress with the negotiations between the Government and
its international creditors, the Troika, more than ever there is a need to pursue
recovery by intensifying structural reforms. In this respect, in July 2015, the
Greek parliament endorsed a number of actions, among which the streamlining
of the VAT system, the solidarity contribution rates in personal income tax and
the luxury tax rate along with a broadening of the luxury tax base. Another set of
actions is under way including labour and pension reforms that are expected to
have a positive contribution of GDP for 2015.
Housing and Mortgage Markets
The Greek housing market has been in recession since the end of 2008 and the
decline in market values and rents has continued throughout 2014, at relatively
slower rates, as medium-term expectations remain negative. It continues to be
characterised by excessive supply as a result of a considerable decline in demand,
which can be attributed mainly to the high unemployment rates, a further
contraction in households’ disposable income, real estate tax hikes, as well as
a liquidity shortage against the backdrop of banks’ tightened credit standards.
The Greek housing market continues to show excessive supply, combined with
a large stock of unsold property and a dramatic reduction in the number of real
estate transactions. Indeed, according to the ELSTAT data collected by notaries
throughout the country, the number of sales acts in real estate fell from 117,948
in 2010 to 83,665 in 2011, 57,650 in 2012 and 49,774 in 2013 even though the
rate of decline in 2013 was significantly lower than the rate of the two previous
years. Private construction activity in terms of building permits returned to positive
territory during the first quarter of 2015 (8.7%) for the first time since 2007
after dramatic rates of decline (-28.4% in 2011, -36.9% in 2012, -27.7% in 2013
and -18.1% in 2014), in contrast to the investment in total construction which
continues to show high rates of decline (-14.2%, -29.6%, -15.9%, -20.5% and
-23.4% in 2011, 2012, 2013 and in the first quarter of 2015, respectively). The
rate of decline in residential investment is even more dramatic (-51.5% annual
rate in 2014). Residential investment (at constant prices) declined from 9.8% of
GDP in 2007 to 1.0% of GDP in Q1 2015. Business expectations in construction
reached their lowest point in 2011 (-27.8%), rebounded in 2012 up to 2014,
whereas a stronger rate of decline was recorded in business expectation for
dwellings (2014: -4.7%).
In the housing market, the drop in prices continued at a stronger pace from 2011 up
to the first half of 2013 and appeared to moderate in the third and fourth quarters
of 2013 as well as in 2014. According to data collected from Eurostat, nominal
residential property prices in Greece declined by -5.5% on average in 2011, followed
by a stronger decline of 11.7% in 2012, 10.8% in 2013 and -7.5% in 2014.
Apartment prices dropped cumulatively by 40.2% between 2008 (average level)
and the second quarter of 2015, while data collected from real estate agencies
points to an even greater decline. A relatively stronger decline in the prices of
“old” apartments (i.e. over 5 years old) compared to “new” apartments (i.e. up
to 5 years old), recorded throughout the preceding period of the current crisis,
was observed (-41.0% and -39.0% respectively). In addition, the fall in prices
46 | 2015 EMF HYPOSTAT