HSBC: "Sees" New Democracy self-reliance in Greek elections

Specifically, it stated that New Democracy has seen its lead over SYRIZA decrease to around 5%, especially after the tragic train accident at the end of February. The current proportional electoral system makes a second round of elections possible, which will be held in early July. Then a new electoral system will come into effect, giving a bonus of up to 40 seats to the first party. This, the bank estimates, increases the chances that New Democracy will garner the absolute majority of seats or at least to be able to form a coalition government.

Upgrading the forecast for growth

On the economic front, HSBC rates Greece as a leader in economic performance in the Eurozone and now places growth at 2.1% from 1.2% in a previous estimate, due to the strong performance of the fourth quarter of 2022 , although it is downgrading its 2024 growth estimate to 1.4% from 1.7% previously due to tighter financing conditions linked to the ECB's sharp monetary tightening.

As it notes, Greece closed 2022 with... a bang. GDP rose 1.4% in the fourth quarter, driven by private consumption (+1.8%) and increased investment (+8.5% quarter-on-quarter) and despite the weight from trade, with imports up 6.3% in the quarter. Investment is now nearly 50% above its pre-pandemic peak (though still 30% lower than in early 2010 before the Greek debt crisis), he notes. GDP is now 6.4% higher than before the pandemic.

The data

The data has improved slightly at the beginning of this year. Manufacturing PMIs rose above 50 again in February (51.7) and the European Commission's Economic Sentiment Index (ESI) rebounded further to 107.5, the highest level since the start of the Ukraine-Russia war. The unemployment rate fell to 10.8% in January – the lowest level since 2009.

Other activity indicators, however, were less supportive, he said. For example, manufacturing capacity utilization fell to 72.9% in February, the lowest since last September, from 76.6% in December. The survey of construction activity fell to -44.0 in February, the weakest level since the pandemic, after 12.0 last December (but it is quite volatile). In addition, consumer confidence fell in February (-47.4, back to December levels after a sharp recovery in January) and annual retail sales growth has slowed since the summer.

However, inflation eased further in February (6.5% year-on-year from a peak of 12.1% in September). Fiscal policy also remains supportive, while the Recovery Fund will support public and private investment, HSBC said.

According to its estimates, in the first quarter growth will move to 2.7% annually, although on a quarterly basis it will decline by 0.2%, in the second quarter to 2.2%, in the third quarter to 2.3 % while the fourth quarter will be charged at 1.1%.

Tourism

Additionally, after a strong season last year, tourism is off to a strong start again this year. International passenger traffic at Greece's 14 regional airports increased by 66% in January and February from last year and on 2019 levels, while at Athens International Airport it was 4% higher. According to HSBC estimates, last year alone foreign tourism may have contributed 4 percentage points to GDP growth, with further room for improvement this year, where it could add another 1% to 2% to Greece's growth.

Investment grade

An important factor is the possibility that Greece's public debt will soon be classified as investment grade, HSBC adds, as Greece is only one notch short of that category on the rating scales of DBRS, Fitch and S&P.

Due to strong tax revenues, the government's cash balance improved significantly last year, from a primary deficit of €7.5 billion (net of interest payments) in 2021 to €0.3 billion. The government's target of achieving a primary fiscal surplus this year looks realistic, even if HSBC sees fiscal slippage risks from using temporary tax windfalls due to high inflation for the financing of measures to deal with the energy crisis (worth almost 6% of GDP) and some permanent spending increases. However, the bank points out, Greece's debt has fallen by more than 35% of GDP in two years to around 170% last year - and it expects it to fall below 160% by 2024, the lowest level since 2010.

Sources of risk

Last year Greece's current account surplus widened from 6.8% of GDP to 9.7% of GDP, over €20 billion. This is the highest since 2010. The financing side has been more stable, with high foreign direct investment (over 3% of GDP) and NGEU funds (around 4% of GDP). Part of that, HSBC notes, was due to rising energy prices, and so far this year it's showing sharp improvement (the current account deficit narrowed from €2.1bn last year to €0.1bn in January, but reflects also a disbursement of 3.5 billion euros from the NGEU), but still a cause for concern for a country with an external debt of nearly 300% of GDP.

Moreover, with increased concerns about potential risks to financial stability in Europe, Greek banks could soon be on investors' radar. However, the sector appears resilient, he points out, with the governor of the Bank recently stating that the likelihood of contagion is "very small". HSBC underlines that the NPE ratio of Greek banks actually decreased to around 6% from almost 50% in 2016, thanks to the 18 billion euros of guarantees provided as part of the "Herakles" program.