Hellenic Upswing

With Tourists, Optimism is Returning in Euro-Battered Greece

Greece
The world's largest exclusively solar-powered boat, the Swiss-flagged MS 'Turanor PlanetSolar' passes the Corinth Canal in central Greece on 28 July 2014.
  • Why it matters

    Why it matters

    An improving economy in Greece could be a harbinger of a broader recovery in Europe, eliminating a source of instability for the euro common currency,

  • Facts

    Facts

    • Gross domestic product growth for 2014 is estimated at 0.5 percent to 0.7 percent.
    • Unemployment remains extremely high at 26.7 percent and is the principal reason why Greece is not bouncing back faster.
    • The government must continue to push a package of reforms through parliament to keep the recovery going.
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    Audio

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Dimitris Gerogiannis, managing director of the Greek air carrier Aegean Airlines, still has bad memories of the winter of 2012. “We had to keep five machines parked for a while,” he said. “ There were no customers.”

Now Aegean is soaring. Its fleet of Airbus jets is flying at close to full capacity and the number of passengers using the airline has risen by 12% in the first quarter.

The recovery of the airline symbolizes the comeback of Greece itself. After six years of painful recession, which saw Greece’s gross domestic product plummet by about 25 percent, the economy is poised to return to the growth in the second half of the year, driven by increasing tourism and consumer spending. Three recently published studies argue the nation is emerging from the wreckage of economic disaster and predict Greece’s recovery could even be slightly stronger than they predict.

Three recently published studies argue the nation is emerging from the wreckage of economic disaster and predict Greece’s recovery could even be slightly stronger than they predict.

“The immediate prospects for the economy look positive,” said Nikos Vettas, director of the Foundation for Economic and Industrial Research (IOBE) in Greece, referring to the most recent quarterly report compiled by the group.

The report predicts GDP growth of at least 0.7 percent in 2014. This is an even brighter outlook than forecasts made by the Greek government and the European Union Commission, which pegged growth this year at 0.6 percent, and the National Bank of Greece, which predicted growth of 0.5 percent.

The economic recovery is under way. In the first quarter of 2012, the nation’s GDP shrank by 0.9 percent, while in the period between April and June, it was only minus 0.3 percent, according to Eurobank Ergasias, Greece’s third-largest bank. For the year as a whole, Eurobank expects growth of up to 1 percent.

Leading the recovery is a hefty increase in tourism. In the first five months of the year, the number of visitors grew by 17% and the country anticipates a new record of about 20 million travelers. Tourism is a critical component of the nation’s economy, contributing about 17% to the GDP.

 

Greece carriers Olympic and Aegean, file photo, 2005 Source AP
Greek businesses, such as domestic airline Aegean, are navigating rising sales and demand as the nation emerges from the euro crisis. Source: AP

 

Domestic consumer spending is also on the rise. While real incomes have fallen by as much as 30 percent over the last four years, Greeks seem to catch up on purchases they put off during the crisis. Consumer spending grew by 0.7 percent in the first quarter.

What continues to slow down the economy, however, is unemployment, Greece’s biggest problem. The IOBE expects an average annual unemployment rate of 26.7 percent, a horrific number but an improvement over the record high 27.7 percent in fall 2013. Unemployment rates for those 25-years-old and younger remains extraordinarily high at about 60 percent.

According to a study by the National Bank of Greece, the Greek economy could enjoy cumulative growth of 19.6% by 2020. That recovery would create an estimated 720,000 badly needed jobs.

Experts emphasize that Greece can only expect sustainable growth if the nation continues to move forward with its reform policies. The government in Athens has not always embraced the necessary fiscal changes and there are lingering concerns it might backslide.

The government must push the reform package through parliament before the scheduled September inspection of the “troika,” a committee consisting of representatives of the European Union, European Central Bank and the International Monetary Fund, that is overseeing Greece bailout programs. Greece will have to demonstrate what progress has been made.

Greece still faces a steep climb from the economic crisis, but there are clear signals better times lie ahead.

Gerd Höhler is the Handelsblatt correspondent in Athens. You can reach him at ghoehler@otenet.gr

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