Greek Economy: Better sentiment…but what about growth?

1 October 2019

Economic Research & Investment Strategy

Speaker: Ilias Lekkos

Macroeconomic Outlook

Challenges

Opportunities & Emerging Trends

2

The story that we all want to forget - But we shouldn’t

Source: ELSTAT, Piraeus Bank Research

Real GDP increased by 1.9% in 2018

Private Consumption increased by

1.1% in 2018 supporting growth

Public Consumption has remained stable

at approx. €40 bn since 2013

Investments backtracked in 2018 Imports have increased, returning to

their 2004 level

Exports at record high in 2018

3

2001 €131bn 2017

€ 128bn

2018€ 130bn

90

100

110

120

130

140

150

160

170

180

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Private Consumption Long term average

2004 €68bn 2017

€65bn

2018€67 bn

10

20

30

40

50

60

70

80

90

100

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Imports of goods and services Long term average

2017 €60bn

2018€65bn

10

20

30

40

50

60

70

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Exports of goods and services Long term average

Source: ELSTAT, Bank of Greece, Piraeus Bank Research

Real GDP (annual % change)

Manufacturing (annual % change) positive since 2014, on a

stable c3% growth since 2016

Retail Sales, excl. automotive fuels

(annual % change), sustained single-digit growth since 2016

Current Account Balance (% of GDP)

still in deficit Employment (annual % change) after a sharp decline,

employment has been expanding by 2%.

-16.0

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Current Account balance (as % of GDP)

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Retail Volume Index (excl. auto fuels) - % change

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

IPI Manufacturing (% change)

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Εmployed (% change)

2019 f1.6%

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19 f

Real GDP (% change)

What is the current state of the Greek Economy?

4

Source: European Commission DG ECFIN, Piraeus Bank Research

Economic Sentiment Indicator, ESI

Industrial Confidence Indicator Confidence Indicator in Retail Trade

Confidence Indicator in Constructions

Confidence Indicator in ServicesConsumers: General economic situation over next 12 months

Sept

60.0

70.0

80.0

90.0

100.0

110.0

120.0

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

ESI

Sept

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Industrial Confidence Indicator

Sept

-60.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Confidence Indicator in Services

Sept

-60.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Confidence Indicator in Retail Trade

Sept

-100.0

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Consumers: General economic situation over the next 12 months

Sept

-90.0

-80.0

-70.0

-60.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Confidence Indicator in Constructions

sa data

sa data

sa data

sa data

sa datasa data

What has been the impact of the new government?

5

Source: Piraeus Bank Research 6

Piraeus Bank Corporate ex-Financials Bond Index: Despite the market’s appetite for

high-yielding bonds, the cost of debt of the Greek corporate bond market has remained

relatively stable in recent years.

Piraeus Bank Sovereign Bond Index: The upward trend in Greek government

bonds continues, with a new low recorded for the Piraeus Bank Index at 1.29%.

1.52.02.53.03.54.04.55.05.56.06.57.07.58.08.59.09.5

10.010.511.011.512.012.513.013.514.014.5

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3Ja

n-1

4M

ar-1

4M

ay-1

4Ju

l-1

4Se

p-1

4N

ov-

14

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5Ja

n-1

6M

ar-1

6M

ay-1

6Ju

l-1

6Se

p-1

6N

ov-

16

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7Ja

n-1

8M

ar-1

8M

ay-1

8Ju

l-1

8Se

p-1

8N

ov-

18

Jan

-19

Mar

-19

May

-19

Jul-

19

Sep

-19

Wei

ghte

d Y

tM (

%)

0.01.02.03.04.05.06.07.08.09.0

10.011.012.013.014.015.016.017.018.019.020.021.022.023.024.025.026.027.0

Jul-

12

Sep

-12

No

v-1

2Ja

n-1

3M

ar-1

3M

ay-1

3Ju

l-1

3Se

p-1

3N

ov-

13

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4Ja

n-1

5M

ar-1

5M

ay-1

5Ju

l-1

5Se

p-1

5N

ov-

15

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6Ja

n-1

7M

ar-1

7M

ay-1

7Ju

l-1

7Se

p-1

7N

ov-

17

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8Ja

n-1

9M

ar-1

9M

ay-1

9Ju

l-1

9Se

p-1

9

Wei

ghte

d Y

tM (

%)

The positive sentiment has been transmitted to Greek Financial assets

Source: ELSTAT, European Commission DG ECFIN, Piraeus Bank Research

Economic Sentiment Indicator (ESI) (index, 1990 -2018 =100)

vs Real GDP growth rate

Consumer & business expectations support a steady economic

climate in H2, showing an improvement in July - August

Business Confidence Indicator1

Consumer Confidence Indicator2

1. Index 1990 – 2018=100. The methodology is based on DG Ecfin Business & Consumer surveys.

2. arithmetic means of answers (seasonally adjusted balances, which are the difference between positive and negative answering options, measured as percentage points of total answers) to a selection of questions

sa data

sa data

sa data

The key issue for 2020 is whether hard-data will follow business and consumer sentiment…

7

Source: Eurostat, ELSTAT, Piraeus Bank Research

Industrial Production Index decelerating

trend, but still on a positive trajectory

sa datasa data

sa data

Turnover Index in Services (excl. trade &

vehicles) in an expansionary trajectory

Turnover Index in Retail Sales (excl. automotive

fuels) captures the decline of private consumption

Turnover Index in Wholesale Trade marginally negative growth rate in Q2

nsa data

Total Building Permits Strong fluctuations

Drivers of Real GDP growth rate (annual % change, unless otherwise stated)

2.1%

1.0%

-2.1%

-13.8

4.3%

8.9%

-2.5%

€ -0.9 bn

1.5%

-0.1%

1.9%

7.6

0.7%

4.8%

6.7%

€ -1.6 bn

Real GDP

Private

Consumption

Public

Consumption

Gross Capital

Formation

Gross Fixed

Capital Formation

Exports

Imports

External

trade

H1.2018 H1.2019

sa data

…but the “hard” data are still on the “soft” side

8

Macroeconomic Outlook

Challenges

Opportunities & Emerging Trends

9

Source: ELSTAT, MinFin (Stability Program 2019), Piraeus Bank Research

It’s difficult for both households and the state to be net savers at the same time

10

General Government Primary Balance (based on Enhanced

Surveillance definition, % of GDP)

2018 is the fourth year that Greece over-achieves its fiscal targets

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q1

.03

Q3

.03

Q1

.04

Q3

.04

Q1

.05

Q3

.05

Q1

.06

Q3

.06

Q1

.07

Q3

.07

Q1

.08

Q3

.08

Q1

.09

Q3

.09

Q1

.10

Q3

.10

Q1

.11

Q3

.11

Q1

.12

Q3

.12

Q1

.13

Q3

.13

Q1

.14

Q3

.14

Q1

.15

Q3

.15

Q1

.16

Q3

.16

Q1

.17

Q3

.17

Q1

.18

Q3

.18

Q1

.19

Gross Saving Ratio 1 (% of Household Disposable Income, 4Q ma)

this negative savings gap has been decreasing, but not fast enough

for the households’ saving ratio to turn positive

1. Gross Saving Ratio=HDI−FC

HDI=

Gross SavingsHDI

Eurozone: Growth Outlook deteriorates

Source: Eurostat, IHS Markit, Piraeus Bank Research 11

Industrial Production Index (annual % change, 3M ma) Industrial Production declines in Europe led by Germany

Real GDP Growth Rate (annual % change) the economic activity of Greece’s trading partners of seems to slow down severely

Macroeconomic Outlook

Challenges

Opportunities & Emerging Trends

12

Investments & Net Capital Stock (€ bn)

For 2% average GDP growth we need to “crowd-in” € 325 bn of investments.

Non Financial Corporations Net vs

Gross Fixed Capital Formation (€ bn, current prices)

Source: ELSTAT, Piraeus Bank Research

A substantial investment gap that needs to close

13

EBITDA margin Total liabilities to equity Net debt to EBITDA

Dormant “Animal Spirits” drive defensive corporate balance-sheets to extremes.

Source: ICAP DATA.Prisma, Piraeus Bank Research 14

Greek corporates with sound fundamentals but no leverage

Source: Bank of Greece, Piraeus Bank Research

Corporate Loans (net flows, bn €) 1,2

Corporate Loans (annual % change) 1,2

Corporate Loans by sector (net flows in € mn & growth rates) 1,2

positive net flows in the majority of the sectors

1. The outstanding amounts include loans, holdings of corporate bonds and securitized loans serviced by credit institutions. Including credit extended by the Bank of Greece. As of December 2016, loans of the Consignment Deposits and Loan Fund are excluded from the domestic credit as the institution has been reclassified from the financial sector to the general government sector. As of March 2019 loans to shipping companies which have their registered office abroad are no longer included in credit to the domestic economy.

2. Net flows and growth rates are calculated taking into account reclassifications and transfers of loans/corporate bonds, write-offs and exchange rate variations.

15

that Greek banks are starting to support once again

Source: Bank of Greece, Piraeus Bank Research

1. Office Price Index

Residential Real Estate Prices (annual % change)on a clear recovery path

Real Estate FDI in Greece (cumulative annual flows, mn €)increased interest from abroad

Q2.197.7%

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Q1

.07

Q3

.07

Q1

.08

Q3

.08

Q1

.09

Q3

.09

Q1

.10

Q3

.10

Q1

.11

Q3

.11

Q1

.12

Q3

.12

Q1

.13

Q3

.13

Q1

.14

Q3

.14

Q1

.15

Q3

.15

Q1

.16

Q3

.16

Q1

.17

Q3

.17

Q1

.18

Q3

.18

Q1

.19

H2.186.4%

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

H1

.11

H2

.11

H1

.12

H2

.12

H1

.13

H2

.13

H1

.14

H2

.14

H1

.15

H2

.15

H1

.16

H2

.16

H1

.17

H2

.17

H1

.18

H2

.18

Non Residential Real Estate Prices1 (annual % change)increased by 7.0% in 2018

16

Finally, commercial and residential Real Estate sectors recover…on the back of record FDI inflows

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17