Country Economic Forecasts > Greece

GDP surprised on the upside in Q2, rising 0.3% on the quarter after a 0.1% fall in Q1. Although no breakdown by expenditure is available yet, the most likely explanation is a burst of spending as consumers brought forward purchases of big-ticket items ahead of June's increase in VAT. Car registrations, for example, grew at double-digit rates in the three months preceding the VAT increase, but have since fallen back by over 20%. This points to a renewed fall in GDP in Q3.Official forecasts of the Greek economy still appear over-optimistic, based on the view that the reduction of government arrears will result in a significant stimulus. Hence both the IMF and the EC currently envisage a recovery taking hold during H2 this year, with the economy forecast to expand by 2.7% in 2017. We continue to expect the additional fiscal tightening to be a significant drag on growth and anticipate activity falling for the rest of this year before a weak recovery gets under way in 2017. But given the carry-over effects from the surprise Q2 outturn, this still results in a significant upward revision to our forecast. We now expect GDP to fall by just 0.3% this year, before growing 0.5% in 2017, but we remain significantly more bearish than the official forecasts.