NBG Economic Analysis Department 86 Eolou Str., 102 32 Athens, Greece https://www.nbg.gr/en/the-group/press-office/e-spot Crude oil (Brent) prices declined to 6-year lows, showing a cumulative decline of 35% in euro terms between June 2014 and April 2015, despite the significant depreciation of the euro against the USD of 21% during this period. NBG Research and market consensus estimates suggest that oil prices will remain low for the most part of 2015, while the euro is expected to depreciate further to USD 1.03 by end-2015. As a result, oil prices will be 25% lower than their 2014 level in euro terms -- as the oil price adjustment reflects sustainable supply factors and a very gradual increase in demand, looking forward. The sustained sharp decline in oil prices is expected to provide valuable support to economic activity in the oil-dependent Greek economy through several channels: A direct increase in household purchasing power through the decline in aggregate spending on petroleum products that accounts for about 5.3% of household disposable income in Greece compared with 3.8% in the euro area. Lower operating costs for Greece’s oil-dependent industrial and transportation sectors, which will translate into higher profit margins. “Second-round” effects, through the transmission of lower energy costs to final prices of goods and services (i.e. lower core inflation) that bring an additional respite to the severely stressed Greek household budgets. The direct contribution of lower oil prices to annual GDP growth is estimated to reach +0.9% in FY:2015, of which 0.5% corresponds to higher household spending, and 0.4% from higher corporate profitability. Favorable second-round effects on household income, through falling core inflation, provide an additional upside to GDP growth (+0.1-0.2% of GDP in 2015). The oil trade deficit is estimated to narrow by 0.4% of GDP in 2015, with lower spending on imports of crude oil and oil products, despite higher import volumes. The net fiscal impact in FY:2015 will be positive (0.2% of GDP), as increasing revenue from the excise tax on fuel, which rises in parallel with domestic fuel consumption volumes (and represents two-thirds of the tax burden on fuel), as well as government savings from lower spending on fuel, will outweigh the value-based VAT shortfall. GREECE Macro View April 2015 L L o o w w e e r r o o i i l l p p r r i i c c e e s s s s u u p p p p o o r r t t e e c c o o n n o o m m i i c c a a c c t t i i v v i i t t y y i i n n a a p p e e r r i i o o d d o o f f i i n n c c r r e e a a s s i i n n g g m m a a c c r r o o e e c c o o n n o o m m i i c c r r i i s s k k s s Paul Mylonas, PhD (+30210) 334 1521 e-mail: [email protected]Nikos S. Magginas, PhD (+30210) 334 1516 e-mail: [email protected]NATIONAL BANK OF GREECE Macroeconomic Indicators & Fiscal Outlook, pages 13-22
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NATIONAL BANK OF GREECE Greece: Macro View GRREEECCE · remain low for the most part of 2015, as the current price levels reflect a sustainable combination of supportive supply and
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NATIONAL BANK OF GREECE | Greece: Macro View | July 2014
Crude oil (Brent) prices declined to 6-year lows, showing a cumulative decline of 35% in euro terms between June 2014 and April 2015, despite the significant depreciation of the euro against the USD of 21% during this period.
NBG Research and market consensus estimates suggest that oil prices will remain low for the most part of 2015, while the euro is expected to depreciate further to USD 1.03 by end-2015. As a result, oil prices will be 25% lower than their 2014 level in euro terms -- as the oil price adjustment reflects sustainable supply factors and a very gradual increase in demand, looking forward.
The sustained sharp decline in oil prices is expected to provide valuable support to economic activity in the oil-dependent Greek economy through several channels:
A direct increase in household purchasing power through the decline in aggregate spending on petroleum products that accounts for about 5.3% of household disposable income in Greece compared with 3.8% in the euro area.
Lower operating costs for Greece’s oil-dependent industrial and transportation sectors, which will translate into higher profit margins.
“Second-round” effects, through the transmission of lower energy costs to final prices of goods and services (i.e. lower core inflation) that bring an additional respite to the severely stressed Greek household budgets.
The direct contribution of lower oil prices to annual GDP growth is estimated to reach +0.9% in FY:2015, of which 0.5% corresponds to higher household spending, and 0.4% from higher corporate profitability. Favorable second-round effects on household income, through falling core inflation, provide an additional upside to GDP growth (+0.1-0.2% of GDP in 2015).
The oil trade deficit is estimated to narrow by 0.4% of GDP in 2015, with lower spending on imports of crude oil and oil products, despite higher import volumes.
The net fiscal impact in FY:2015 will be positive (0.2% of GDP), as increasing revenue from the excise tax on fuel, which rises in parallel with domestic fuel consumption volumes (and represents two-thirds of the tax burden on fuel), as well as government savings from lower spending on fuel, will outweigh the value-based VAT shortfall.
GGRREEEECCEE Macro View
April 2015
LLoowweerr ooiill pprriicceess ssuuppppoorrtt
eeccoonnoommiicc aaccttiivviittyy iinn aa ppeerriioodd ooff
The direct fiscal impact is estimated to be negative in Q1:2015, due
to the contraction of the nominal tax base of VAT on fuels (an
estimated annual reduction of 0.3% of GDP in FY:2015), which
translated into a contraction of fuel VAT revenue of almost €0.10
bn in Q1:2015. However, increasing revenue from the excise tax on
fuel (almost +€0.3 bn or +6.9% y-o-y in FY:2015), which rises in
parallel with domestic fuel consumption volumes (+6.5% y-o-y
analogous to the increase in net oil import volumes), will outweigh
the VAT revenue shortage from Q2:2015 onwards, leading to a net
improvement in total revenue from fuel taxes (VAT and excise) of
€0.16 bn in FY:2015 (0.14% of GDP). Recall that the tax revenue
from excise tax represents about two-thirds of the total tax take on
fuels.
The effective impact on fiscal figures is expected to be even larger
if we take into account government savings of about €0.05 bn. It
would arise from lower spending on fuel and the estimated
increase in total revenue from indirect taxes of €0.14 bn due to the
effective increase of nominal GDP growth by about +0.4% y-o-y (an
annual increase of 1% in real GDP adjusted for a decline in the GDP
deflator by -0.6% y-o-y). Overall, the favourable fiscal impact in
FY:2015 is estimated to exceed €0.38 bn (almost 0.2% of GDP).
0
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4
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2
3
4
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10
20
11
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12
20
13
20
14
20
15
f
20
16
f
Increasing consumption volumes will result in higher revenue from
fuel taxes in 2015-16
Fuel VAT revenue
Revenue from excise tax on fuels
Total fuel tax revenue
% GDP
NATIONAL BANK OF GREECE
GREECE | NBG Macro View | April 2015| p. 12
Appendix
A SVAR Model of Inflation Shock Transmission Model based estimates at an economy-wide level point to a significant impact on economic activity and
inflation from lower oil prices in 2015 that extend through 2016
NBG Research provides additional evidence on the transmission of oil shocks to the Greek economy on the basis of a dynamic macroeconomic model (SVAR system). SVAR models are generally considered to have attractive properties as regards the identification and assessment of the pass-through of oil shocks to the economy and capturing indirect effects on sectors of economic activity, which are not possible to approximate through bottom-up approaches based on sectoral spending/income multipliers. These economy-wide data are also used as a benchmark to validate sectoral estimates of the economic impact of oil price changes presented in the previous sections. This box presents a subset of the forecasts obtained from this system, which is closely related to the analysis presented in the main text.
The variables included in the system are the following: i) retail fuel (oil products) prices instead of crude oil prices, often used in the literature to account for the potentially important role of excise fuel taxes and other production and distribution costs in the transmission of international oil price changes to the domestic economy; ii) Greece’s real GDP growth; iii) the real effective exchange rate; iv) an index of Greece’s non-fuel import prices; v) core inflation; and vi) euro area GDP growth (as an exogenous variable to control for changes in international demand conditions). The system is estimated on historical quarterly data for the period 1995-2013. According to the model, a 10% fall in retail fuel is estimated to boost Greece’s growth by around 0.4 pps in the 2 quarters following the shock and by 0.7 pps in the third quarter. The expansionary impact declines to 0.5 pps in the fourth quarter following the shock. The positive impact on growth continues in the second year (but about 40% lower) and fades by the beginning of the third year. Thus, the projected fall in retail fuel prices of 16.8% y-o-y in 4M:2015 is estimated to add 0.7 pps to annual GDP growth in Q1:2015 and Q2:2015 and almost 1.1% in H2:2015 growth. The average annual impact on 2015 growth is estimated at 0.9%, and is expected to decline to +0.3%, on average, in H1:2016. These estimates are consistent with the bottom-up analysis presented in the main text. The impact on core inflation is estimated at -0.5 pps, on average, in 2015.
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8quarters
Impact on GDP growth of a 10% decline in retail fuel prices
+/- 2 standard errors
%
-0,50
-0,40
-0,30
-0,20
-0,10
0,00
0,10
0,20
0,30
t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8quarters
Impact on core inflation of a 10% decline in import prices
Net exports (contribution to GDP) 2,6 3,1 1,3 0,2 +2,1 / +1,8
Exports (y-o-y) 1,0 1,0 1,5 8,8 +5,1 / +6,4
Imports (y-o-y) -7,8 -9,4 -2,9 7,4 -1,5 / +0,3
*also including other statistical discrepancies Source: EL.STAT. and NBG Research Estimates
Greece: Growth Outlook
NATIONAL BANK OF GREECE | Greece: Macro View | April 2015
GREECE | NBG Macro View | April 2015| p. 15
Following six years of recession, the Greek economy returned to growth in 2014, with GDP increasing by +0.8%
y-o-y, supported by private consumption (+1.4% y-o-y), business investment (+18.4%) and tourism (+12.3%)
Consumer spending showed a healthy expansion in Q4:2014 (+1.4% y-o-y), in parallel with improving labor market
conditions, lower oil prices and further disinflation
Nonetheless, economic activity lost steam in Q4:2014 (+1.3% y-o-y, -0.4% q-o-q s.a.), as the sharp increase in business investment was accompanied by higher goods
imports (+20%, y-o-y)
In January 2015, car sales increased by 10.3% y-o-y (compared with an increase of 33.5% in Q4:2014) and sales
of other durables fell by 2.1% y-o-y
Manufacturing production expanded by +4.8% y-o-y between November 2014-February 2015, supported by
exports, but capacity utilization fell in February to 65.7%
Higher uncertainty has started to weigh on business sentiment, although consumer confidence showed
a notable buoyancy until March 2015
-14
-9
-4
1
6
20
09
:Q4
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:Q2
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:Q4
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:Q2
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:Q4
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12
:Q2
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12
:Q4
20
13
:Q2
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:Q4
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14
:Q2
20
14
:Q4
Composition of output growth by expenditure component
Consumption Net Exports
Investment Inventories
Growth
contributions in pps
-95
-75
-55
-35
-15
-30
-20
-10
0
10
20
30
Oct
-08
May
-09
De
c-0
9
Jul-
10
Feb
-11
Sep
-11
Ap
r-1
2
No
v-1
2
Jun
-13
Jan
-14
Au
g-1
4
Mar
-15
Retail sales and consumer confidence
Retail sales, volume, y-o-y (left axis)
Consumer confidence, index (right axis)
indexy-o-y
-40
-20
0
20
40
-40
-20
0
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20
06
:Q1
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:Q4
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:Q3
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:Q2
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:Q1
20
09
:Q4
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10
:Q3
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:Q2
20
12
:Q1
20
12
:Q4
20
13
:Q3
20
14
:Q2
Goods exports, goods imports &
business investment
Exports of goods (y-o-y)Imports of goods (y-o-y)Business investment (y-o-y)
-70
-55
-40
-25
-10
5
20
35
50
-40
-30
-20
-10
0
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20
30
Jan
-08
Au
g-0
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Mar
-09
Oct
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May
-10
De
c-1
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Feb
-12
Sep
-12
Ap
r-1
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No
v-1
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Jun
-14
Jan
-15
Consumer durables sales volume and new car registrations
New Passenger Car Registrations (y-o-y change, 3m ma, right axis)
Consumer Durables, vol (y-o-y change, left axis)
%
60
65
70
75
-15
-10
-5
0
5
Feb
-08
Sep
-08
Ap
r-0
9
No
v-0
9
Jun
-10
Jan
-11
Au
g-1
1
Mar
-12
Oct
-12
May
-13
De
c-1
3
Jul-
14
Feb
-15
Capacity utilization and
manufacturing production
Capacity Utilization (right axis)
Manufacturing production, y-o-y (3 month m.a. left axis)
% %
-85
-75
-65
-55
-45
-35
-50
-30
-10
10
30
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Business and consumer confidence indicators
Industrial confidence (left axis)
Services confidence (left axis)
Consumer confidence (right axis)
NATIONAL BANK OF GREECE | Greece: Macro View | April 2015
GREECE | NBG Macro View | April 2015| p. 16
Accordingly, the notable deterioration in business sentiment
presages a sharp slowdown of business investment in Q1:2015
The rapid decline in residential activity continued (-53% y-o-y in Q4:2014), leading residential investment to
historical lows
The decline in house prices was slower in Q4:2014 (-5.8% y-o-y from -7%, y-o-y in Q3:2014), with the peak-to-Q4:2014
adjustment reaching -38.4%
Tourism related activities (accommodation and food services) and retail & wholesale trade were the main
drivers of employment growth in 2014 (+60k positions, 85% of total employment creation)
Retail and wholesale tradeEducationHotels & restaurantsTransportation & telecommunication
y-o-y
Total economic sentiment retreated in Q1:2015, to its lowest level since Q1:2014, with underlying trends pointing
to a further weakening in activity in early Q2:2015
Latest readings of forward-looking indicators (PMI, industrial confidence) suggest that manufacturing activity will be near contraction territory in the following months
65
75
85
95
105
115
-15
-10
-5
0
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10
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02
:Q3
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:Q4
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:Q1
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:Q3
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:Q4
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:Q1
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:Q2
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:Q3
20
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:Q4
20
15
:Q1
GDP growth and economic sentiment indicator
GDP growth (left axis)
Economic sentiment indicator (right axis)
y-o-y index
-38
-31
-24
-17
-10
-3
4
11
-11
-7
-3
1
5
Au
g-0
7
Mar
-08
Oct
-08
May
-09
Dec
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Jul-
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Feb
-11
Sep
-11
Ap
r-1
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No
v-1
2
Jun
-13
Jan
-14
Au
g-1
4
Mar
-15
PMI and Industrial Confidence
PMI, deviat. from 50 (left axis)
Industial confidence, index level (right axis)
NATIONAL BANK OF GREECE | Greece: Macro View | April 2015
GREECE | NBG Macro View | April 2015| p. 17
Employment growth slowed to +1.1% y-o-y in January 2015 from +1.5% y-o-y in Q4:2014, and the unemployment rate declined further to 25.7% in January 2015 from 25.9% in
December 2014
Buoyant tourism activity -- net tourism revenue +9.7% y-o-y or +0.6% of GDP -- was the key factor behind the higher current account surplus (0.9% of GDP in FY:2014). The
surplus is expected to increase further in 2015, supported by lower spending on oil and increasing tourism revenue
The pace of improvement in the current account slowed in Q4:2014 when the support from export services (tourism
and transportation) was limited…
…and the impact of accelerating imports (+5% y-o-y in the 4 months to Feb 2015) outweighed the rebound in goods
exports, leading to a widening of the trade balance
]]
Falling oil prices gave rise to a new round of disinflation (CPI inflation of -2.4% y-o-y, on average, in 3M:2015 and core
inflation -0.7% in the same period)
Credit to the domestic private sector continued to decline in February 2015, albeit at a slower pace (-2.5% vs -2.9% in January), with corporate credit contracting by 2.4% y-o-y
(-2.7% y-o-y in January)
0
5
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-10
-8
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-4
-2
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Jul-
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Jan
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Jul-
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Jan
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Jul-
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Jul-
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Jul-
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Jan
-15
Employment growth Unemployment rate
Employment growth (left axis)
Unemployment rate (right axis)
%y-o-y
Current Account 0,6 0,9 2,1
Non-oil Trade Balance -5,2 -5,8 -5,9
Non-oil Exports 8,0 8,6 8,9
Non-oil Imports 13,2 14,4 14,8
Oil Balance -4,2 -4,2 -3,8
Services Balance 9,3 11,0 11,7
Income Balance -1,7 -1,6 -1,6
Current Transfers, net 2,4 1,5 1,7
Capital transfers 1,7 1,4 1,4
2013 2014 2015f
Balance of Payments (as % GDP)
-17
-13-9
-5
-1
3
7
11
15
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
Feb
-09
Oct
-09
Jun
-10
Feb
-11
Oct
-11
Jun
-12
Feb
-13
Oct
-13
Jun
-14
Feb
-15
Decomposition of Current account balance (nsa, 12-month m.a.)
Contribution of energy in CPI (in percentage points, left axis)
Greece, CPI inflation (y-o-y change, right axis)
Euro area HICP (y-o-y change, right axis)
%, y-o-y
-8
2
12
22
32
-8
2
12
22
32
Q2
:20
05
Q1
:20
06
Q4
:20
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Q3
:20
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Q2
:20
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Q1
:20
09
Q4
:20
09
Q3
:20
10
Q2
:20
11
Q1
:20
12
Q4
:20
12
Q3
:20
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Q2
:20
14
Q1
:20
15
Bank lending to private sector
Housing loans
Credit to private sector
Loans to enterprises
y-o-y
NATIONAL BANK OF GREECE | Greece: Macro View | April 2015
GREECE | NBG Macro View | April 2015| p. 18
Private sector deposits decreased by €7.8bn in February 2015, leading the cumulative loss of total deposits since
November 2014 to €24.7bn
Greek banks’ dependence on Eurosystem funding spiked above €107bn in March, of which €68.5 bn corresponded to
ELA
Greek sovereign bond yields have risen sharply against a backdrop of increasing uncertainty…
…with the shape of the yield curve suggesting severe near-term challenges
Fitch and S&P downgraded Greece's sovereign ratings, by two and one notches, respectively (to CCC and CCC+), in
March-April 2015
Stock market valuations reflect increasing sovereign risk and deteriorating macroeconomic conditions
40
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80
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100
110
120
De
c-0
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g-0
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r-0
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Feb
-10
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Oct
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Au
g-1
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Jun
-13
Ap
r-1
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Feb
-15
Private sector deposits
Households
Non-financial enterprises
Non-euro area residents
% GDP
0
20
40
60
80
100
120
140
160
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Greek banks' borrowing from the
Eurosystem
ECB ELA
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
Jan
-10
Au
g-1
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Mar
-11
Oct
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May
-12
De
c-1
2
Jul-
13
Feb
-14
Sep
-14
Ap
r-1
5
10y government bond spreads over bund
Greece Spain Portugal
Agreementfor further relief1st
MoU
PSI&2ndMoU
0
5
10
15
20
25
30
6m 3y 5y 10y 15y
Greek Sovereign Yield Curve (NBG estimates)
September 15th, 2014
December 12th, 2014
April 16th, 2015
0
3
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9
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15
18
0
3
6
9
12
15
18
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-08
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r-0
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Oct
-09
Ap
r-1
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Oct
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Ap
r-1
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-11
Ap
r-1
2
Oct
-12
Ap
r-1
3
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-13
Ap
r-1
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Oct
-14
Ap
r-1
5
Greek Sovereign Ratings
Fitch Moody's S&P
index value 20 corresponds to AAA
rating and 0 to selective default
0
10000
20000
30000
40000
50000
60000
70000
80000
0
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-07
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v-0
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Jul-
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-09
No
v-0
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-11
No
v-1
1
Jul-
12
Mar
-13
No
v-1
3
Jul-
14
Mar
-15
Stock market indices
ASE General (left axis)
Banks (right axis)
index
NATIONAL BANK OF GREECE | Greece: Macro View | April 2015
GREECE | NBG Macro View | April 2015| p. 19
Fiscal position improves in March after a weak start, albeit due to delays in expenditure
payments State Budget implementation trends improved notably in March compared with the period January-February. Overall, the primary surplus in the State Budget in 3M:2014 reached 1.0% of GDP, exceeding the 3M Budget target by 0.9% of GDP (compared with a shortfall of 0.1% of GDP in 2M:2015). The improvement was due to accelerating revenue and a further restraint in primary spending, which were compounded by a sharp rise in the public investment budget surplus. More specifically, State Budget implementation data in 3M:2014 (1st monthly release) reveal an improved tax revenue performance in February-March, offsetting about 60% of the €1bn revenue (0.6% of GDP) shortfall in January 2015. In fact, gross revenue of the ordinary budget increased by 10% y-o-y in February-March, exceeding the respective target by €0.6 bn (0.3% of GDP) and leading to a narrowing of the cumulative slippage in net revenue to below 0.3% of GDP in 3M:2015 from 0.6% of GDP in January. This development mainly reflects delayed VAT and single real estate tax (ENFIA) payments (0.2% of GDP), in conjunction with extraordinary tax revenue (0.1% of GDP) from the application of an interim law for settling arrears to the State, applied at end-March. Spending restraint intensified, with primary spending at €1.2 bn below the 3M target (0.7% of GDP), with approximately €0.5 bn of planned expenditure postponed to the following months (according to MinFin officials’ comments). The surplus in the public investment budget reached 0.5% of GDP -- compared with a 3M target for a balanced public investment budget -- with inflows from the EU exceeding by 0.4% of GDP the respective budget estimate. Despite the tight liquidity position of the Greek State, the accumulation of new arrears to the private sector was limited in 2M:2015 (0.1% of GDP) and tax refunds to the private sector were 0.1% of GDP higher than the budget target for this period. However, as indicated by the General Government data on a modified cash basis for 2M:2015, the financial position of the entities forming the rest of General government (extra budgetary funds, local governments, social security funds and state-owned enterprises) deteriorated by about 0.7% of GDP in comparison with 2M:2014, likely reflecting lower transfers from the State Budget.
3m.20143m.2015/14
y-o-y changeEstimates
Outcome 3m.Target Deviation
from targetOutcome 3m Target
y-o-y as % GDP
I. State Budget Net Revenue (1+2) 7,0 6,7 6,7 0,1 -5,5 30,9