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Greece: Improved Growth and Investment Greenlighting a Greek Bailout Exit

Summary: As Greece approaches the end of its final bailout program, new signs of improvement are emerging all across the economy. Foreign investment is returning, more infrastructure projects are being planned, and tourist arrivals are booming. Most encouragingly, the Greek financial sector finally appears robust enough to start shedding capital requirements and resuming normal lending practices.

The end of the Greek bailout program in August 2018 is on the horizon, and things are looking brighter than they have for some time. Greece’s GDP grew by 2.3% YoY in the first quarter of this year, marking their fifth straight quarter of expansion and the highest reading in the last decade. Exports from the country are also rising quickly, up 9.5% for the quarter, while imports are down 2.7%. Positive numbers like these are especially crucial right now as Greece edges toward exiting its bailout phase.

Greece’s spiral into financial crisis was largely led by their banks. Thankfully, many of those same banks are reforming to lead them out of the chasm of decline. In August, they are expected to emerge from eight years of bailout conditions. Just last month, Greece’s banks managed to pass the European Central Bank’s stress tests, and plan on reducing non-performing exposures (NPEs) by 37, while non-performing loans are forecast to fall 47% to 38.6 billion euros from 72.8 billion euros, between June 2017 and 2019. The fourth quarter of 2017 saw the highest reduction in NPEs since the start of the crisis The ECB has shown confidence in Greece’s ability to do this by allowing the country to reduce its capital controls on banks.  Under the new rules, the limit on domestic cash withdrawals and cash transfers abroad are both being doubled.

The country’s privatization drive has greatly helped to draw foreign investment back to the peninsula. 2017 saw 9.6% growth in investment, and the European Commission estimates that the high growth rate will continue in 2018 and 2019. The impact of the forthcoming liquidation of overdue public debt to the private sector of €3.5 billion is expected to boost investment (and private consumption) in the second half of the year as net investment position of households and enterprises, and the increase in their deposits, have risen from € 119 billion in April 2017 to € 126 billion in March 2018.

Huge amounts of foreign investment have been flowing into Greece’s shipping industry. Chinese shipping giant Cosco took full control of Piraeus Port Authority (PPA) last year, the authority overseeing the largest Greek seaport, and plans to spend more than €55 million in rebuilding Perama, a large ship repair hub west of Athens, as part of a huge promised investment in the port. The privatization wave also engulfed Thessaloniki Port Authority, Greece’s second-­biggest port. Buyers including France’s CMA CGM group plan to make the port capable of accommodating boxships nearly three times as large as the ones it handles now. Encouraged by the successful sales, and pushed by its creditors, Greece plans to privatize a string of at least 10 other state-controlled ports.

Greek shipping as a whole has become one of the nation’s healthier industries to domestic lenders and investors as well. Shipping loans represent just 2% of the total NPEs that commercial banks need to reduce by the end of 2019. Alpha Bank, the country’s fourth-largest Greek bank, disbursed about €210m of new shipping loans in 2017 and, out of a total portfolio of shipping loans valued at €1.75 billion, only 2% were non-performing.

Greece’s energy infrastructure expansion is also boosting the economy with projects already underway, and many more planned investments spanning the next decade. The enlargement of the already existing natural gas network within Greece, namely in Attica, Thessaly, and Thessaloniki is scheduled to be completed by 2021. At the same time, the construction of natural gas networks in new regions is planned in Central Greece, Central Macedonia, and the Eastern Macedonia-Thrace regions. In order to extend the natural gas supply to remote areas of the mainland, the Ministry of Energy and Environment is organizing the development of brand new compressed natural gas (CNG) infrastructure. The government’s most ambitious project, however, is to have all Greek islands interconnected with electricity by 2030.

Tourism, the consistent bright spot for Greece’s economy, is also on the rise. In 2010, 15 million foreign travelers arrived in Greece for vacation. This year, that number could double with an expected 32 million tourists arriving, a larger increase than any other major European destination. Although some have stated that the country may not be able to handle such a boom, President Alexis Tsipras has addressed the issue explicitly, laying out a series of actions to accommodate the industry. These initiatives include creating a digital ecosystem for Greek tourism, modernizing public infrastructure in tourism such as airports, harbors and marinas, and funding these upgrades by attracting investment in the tourism sector through improved spatial planning, licensing and tax incentives.

The deadline for finishing touches on terms for a bailout exit between the Eurozone and Greece is set for June 21, and it is likely that a deal will be reached to keep Greece on track for this event.

MRP added Long Greece as a theme on January 19, 2018. Since then, the MSCI Greece ETF (GREK) has seen a decline of 14% versus the S&P 500’s 2% decline. However, MRP believes that Greece’s bailout exit will only mark the beginning of its real economic recovery, and create tailwinds for Greek equities to outperform the S&P and the broad EU market as represented by the Eurozone ETF (EZU).

We’ve also summarized the following articles related to this topic…

 

Greece: Greek economy grows by most in a decade

Output grew by 2.3 per cent in yearly terms between January and March, marking a fifth straight quarter of expansion. Analysts said the first quarter figure, the highest recorded in the past decade, matched projections by the EU and International Monetary Fund that gross domestic product would increase this year by around 2 per cent.

Seasonally-adjusted data showed growth accelerating from an upwardly revised 2 per cent in the fourth quarter of 2017, Elstat said. Output measured on a quarterly basis grew by 0.8 per cent compared with an upwardly revised 0.2 per cent from October to December. Exports showed a year-on-year rise of 9.5 per cent, while imports declined by 2.7 per cent. Gross fixed capital formation fell by 8.3 per cent on an annual basis, Elstat said.

“We’re seeing indications that the economy is turning around but it’s not a robust trend yet,” said Nikos Vettos, director of the Athens think-tank IOVE. “Export-oriented companies are doing better but consumption remains stagnant and the fall in investment is unexpected.” FT

 

Greece: Biggest ports in Greece come to life as giants pour in millions of euros

A panamax-size floating dock sailed halfway across the world from China to arrive at the Perama shiprepair area near Piraeus this year. The Piraeus III platform, which can handle ships of up to 80,000 dwt, entered commercial operation last month. Chinese shipping giant Cosco, which took full control of Piraeus Port Authority (PPA) last year and brought Piraeus III to Greece, plans to spend more than €55m ($65m) in Perama. Once a blossoming shiprepair hub, it has fallen far behind rivals, such as Istanbul, over the past few decades as rising wages ate into its competitiveness and lack of investment in new facilities drove clients away.

In 2000, the first year for which official data exists, and just before Greece became a member of the eurozone, 1,575 vessels with a total capacity of 18.8 million gt were repaired or dry-docked in the country. By last year, activity had plummeted to 447 vessels of 4.6 million gt. Bringing repair jobs to Perama was one of the pledges Cosco made in its bid to take over management of PPA.

The privatisation wave also engulfed Thessaloniki Port Authority. Over the next few years, ships of up to 12,000 teu will be able to load and unload there Encouraged by the successful sales, and pushed by its creditors, Greece plans to privatise a string of smaller state-controlled ports. Privatisation agency TAIPED has readied tenders for majority stakes in a further 10 port authorities, endowed with concession rights to operate their harbour facilities until 2042. TWN

 

Greece: Bank ship finance to Greek market seen rising

Although bank ship finance into Greek shipping continued to contract in 2017, the decline is slowing and by the end of this year more banks will become more willing to lend into the Greek market. With the number of banks involved in Greek ship finance remaining at 51, with a small internal reshuffle, the report supports the evident retrenchment of traditional bank finance as a source of funding for Greek interests.

The top 10 Greek ship financing banks, although they have collectively reduced their loan portfolios, saw their share of the total rise 1% to 56.17% last year, as the whole portfolio has fallen. European banks still account for the vast majority of total loans at 78.70%, though their share is steadily dropping. It was 90% in 2013.

The fall in overall Greek loans, both drawn and committed but undrawn, booked both in Greece and worldwide, saw the Petrofin Index for Greek Shipfinance at January 1, 2018 standing at 327 points down from 346 a year earlier and 379 in 2016. Overall, Greek bank exposure is up 4.25% and their share of Greek ship finance has risen to 16.84% compared to 15.25% last year and 14.63% in 2015. SMN

 

Greece: Greece relaxes capital controls to prove worst of turmoil is over

Greece is to take a substantial step towards easing capital controls  as it prepares to exit its current bailout programme. Signalling that confidence is gradually returning to the country’s banking system, the leftist-led government has doubled the amount depositors will be able to withdraw from their accounts as of Monday.

Under the new rules, the limit on cash withdrawals from local banks will be raised from €2,300 to €5,000 per month. Business transactions will also be facilitated, with cash transfers abroad being doubled to €40,000 a month. The Greek finance ministry said it had similarly decided to increase the amount depositors can take abroad, in euros or foreign currency, from €2,300 to €3,000 per trip. From 1 July, banks will be allowed to accept customer orders for money transfers overseas for up to €4,000 bi-monthly. In a statement the finance ministry said the aim was to fully lift restrictions “as soon as possible” while ensuring macroeconomic and financial stability.

Greek banks are still encumbered by high levels of non-performing loans although non-performing exposures dropped by 4.8% – the highest quarterly reduction since the onset of the crisis – over the fourth quarter of 2017. Markets know that the Greek economy is doing well and its prospects are excellent, and rather than be a cause for fear, events in Rome validated Athens argument that debt relief was crucial if Greece. Guardian

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