Unicredit: Greek GDP to shrink 16% in 2020 – Economy to recover (+12%) in 2021

Tourism sector the hardest hit

Unicredit revised its forecast for the impact of the Covid-19 pandemic on the Greek economy compared to the previous (-18.6% for 2020).

In its latest forecast, Unicredit estimates that GDP will shrink by 16% in 2020 and predicts a recovery of 12% from 15.5% based on the previous forecast in 2021. In the first quarter, GDP shrank by less than 2% compared to its average eurozone (3.8%), which is attributed to the positive consumer spending and reserves.

These partially offset the predicted negative factors. The main scenario is that GDP will remain below the 5% threshold of 2019. The Greek economy is likely to record unprecedented contraction due to restrictive measures, while the country’s exports are expected to be among the worst hit by the pandemic, which will lead to a sharp drop in demand for Greek products and services. The spring season for tourism, which contributes 25% to the aggregate tourism revenues – corresponds to 10% of GDP in 2019 which has been lost.

In addition, the losses in terms of bookings for the summer that will take place in the spring will probably mean that the effects of the pandemic will be more persistent in the tourism industry than in other sectors of the market. The fall in bookings combined with the impact on the source countries for inbound visitors, in terms of income, will translate into losses of more than 50% in the Greek tourist market.

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As Unicredit reports, the Greek government has provided generous income support and many liquidity measures to mitigate the effects of the pandemic on households and businesses and to support the recovery of economic activity. At the end of May, the fiscal incentive package for 2020 was strengthened by 15 billion euros (8% of GDP 2019) including 9 billion for social assistance and tax exemptions as well as 6 billion in deferrals of payments and loan guarantees. The government estimates that the package will amount to 24 billion euros (13% of GDP).

Unicredit notes that Greek Prime Minister Kyriakos Mitsotakis has stated that he will adopt additional measures in the fall, provided that Greece manages to get the green light from its creditors to reduce the primary target for surpluses in 2021.