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Greek Economic Outlook: Positive Sentiment - Improving Prospects
Economic Research & Investment StrategySeptember 2017
Ilias Lekkos [email protected] Irini Staggel [email protected] Aggelopoulou [email protected] Vlachou [email protected] Rotsika [email protected]
Short & Long-Term Perspectives of the Greek Economy
Alternative Macro Scenarios
Three Challenges to our Outlook
Greek SMEs Panorama
Emerging Trends and Opportunities in the New Greek Landscape
1
A Bird’s eye view of the Greek Crisis
Source: ELSTAT, Economic Research & Investment Strategy
1999:€183bn2016:€184bn
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Real GDP Long-Term Average
2001: €131bn2016: €129bn
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Private Consumption Long-Term Average
2000:€39bn 2016: €40bn
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Public Consumption Long-Term Average
2016: €21bnMin value
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Gross fixed capital formation Long-Term Average
2007:€57bn 2016: €56bn
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Exports of goods and services Long-Term Average
2002: €60bn2016: €60bn
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Imports of goods and services Long-Term Average
GDP is back to 1999
Consumption has returned to its 2001 levelsPublic spending: Close to the 2000 levels
Investments at record low
Imports stabilised at long-term average
Exports are on the rebound due to Tourism
2
Economic Activity Indicators are already on “Growth Mode”
Industrial Production Index, seasonally adjusted Despite fluctuations, we mark the improved positive trend
Retail Trade Volume Index (excl. automotive fuel), seasonally adjusted Return to positive territory
Employment, seasonally adjusted Labour market starts to rebound after the shock
Tourism RevenuesTourism as a key pillar of the economy
3Source: ELSTAT, Bank of Greece, Economic Research & Investment Strategy
Greece: Macroeconomic Forecasts (Baseline)
2015 2016 2017 2018 2019 2020
Real GDP
(sa data, % change)-0.3% 0.0% 1.2% 2.1% 2.3% 2.7%
Nominal GDP
(sa data, % change)-1.3% 0.1% 2.1% 3.2% 3.7% 4.2%
HICP
(% change)-1.1% 0.0% 1.3% 1.6% 1.8% 1.9%
Gross Fixed Capital Formation
(sa data, € bn)€ 21 € 21 € 23 € 27 € 32 € 37
Savings Rate (households,
% of gross disp. income)-7.1% -9.4% -10.3% -10.2% -9.4% -8.0%
Unemployment Rate
(% of labour force)24.9% 23.5% 21.6% 19.7% 18.0% 16.7%
Non-Residential Real Estate
(% change)-0.1% 0.6% 1.5% 2.2% 3.5% 4.0%
Residential Real Estate
(% change)-5.1% -2.4% -1.7% 0.9% 2.3% 2.7%
…and the same holds for our Short & Medium Term Outlook
Economic Sentiment Indicator (ESI)
vs Real GDP Growth Rate
4Source: ELSTAT, Bank of Greece, Economic Research & Investment Strategy
Short & Long-Term Perspectives of the Greek Economy
Alternative Macro Scenarios
Three Challenges to our Outlook
Greek SMEs Panorama
Emerging Trends and Opportunities in the New Greek Landscape
5
In addition to the baseline forecast, we can use our models to produce the full range of potential scenarios
…...to our preferred scenarios ……
6Source: ELSTAT, Economic Research & Investment Strategy
From the complete distribution of GDP outcomes ……
Alternative Scenarios – Main Economic Indicators
Unemployment Rate (%)Investments (2010 prices, bn €)
Non – Residential Prices (% change)Residential Prices (% change)Inflation (HICP)
Nominal GDP (% change)
7Source: ELSTAT, Bank of Greece, Economic Research & Investment Strategy
Putting it all together: The Method behind our Madness
8
Employment
Labour Force Unemployed
Non Residential PricesResidential Prices
Population +15yrs Participation Rate Productivity Unemployment rate
Households Saving Rate Households Gross Savings (current prices)
Private consumption (2010 prices)
Private consumption (current prices)
HICP
CPI
Non Residential Price IndexResidential Price Index
Investments(2010 prices)
Real GDP (2010 prices)
Disposable Income (current prices)
Private Sector Credit
GDP Deflator
Households Disposable Income (current prices)
Private Sector Deposits
Nominal GDP
HICP constant tax
Source: Economic Research & Investment Strategy
Short & Long-Term Perspective of the Greek Economy
Alternative Macro Scenarios
Three Challenges to our Outlook
Greek SMEs Panorama
Emerging Trends and Opportunities in the New Greek Landscape
9
50
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Gross Disposable Income Final Consumption
Gap€1.3bn
Households
Disposable Income vs Private Consumption
(€ bn, current prices)
Non Financial Corporations
Net vs Gross Fixed Capital Formation
(€ bn, current prices)
The Consumption to Investment Rotation Challenge
Gap€-10.6bn
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
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Gross Fixed Capital Formation Net Fixed Capital Formation
Disinvestment
through depreciation
10Source: ELSTAT, Economic Research & Investment Strategy
The €14bn Fiscal Consolidation Challenge
in € mn 2015 2016 2017 2018 2019 2020 2021
Me
asu
res
MO
U
20
15
-20
18
Wage measures and non-wage benefits 0 71 173 102 13 42 -17
Pension reforms 0 187 540 658 398 489 214
Measures on social security contributions and social benefits 293 1,020 -965 348 -15 -45 -30
Other reforms 10 60 7 241 -22 0 0
Measures on the revenue side of State Budget 985 2,066 2,033 454 -59 -12 -16
Total 1,288 3,404 1,788 1,803 315 474 151
Me
asu
res
MTF
S2
01
8-2
02
1 Pension reforms - - - 0 2,493 90 140
Measures on social security contributions and social benefits - - - 59 79 2 3
Measures on the revenue side of State Budget - - - 0 0 1,920 138
Total 0 0 0 59 2,572 2,012 281
Total Measures in a yearly basis 1,288 3,404 1,788 1,862 2,887 2,486 432
Co
un
ter
Me
asu
res
MTF
S 2
01
8-2
02
1
Social welfare - - - - -1,850 650 30
Investment - - - - -300 0 0
Employment - - - - -260 0 0
Health system - - - - -240 0 0
Counter measures on the revenue side of State Budget - - - - 0 -3,415 -2,174
Total Counter Measures in a yearly basis 0 0 0 0 -2,650 -2,765 -2,144
Final Impact of Total Measures in a yearly basis 1,288 3,404 1,788 1,862 237 -279 -1,712
Final Impact of Total Measures in a gross cumulative basis 1,288 4,692 6,480 8,342 8,579 8,300 6,588
€ 9.2 bn
€ 4.9 bn
€ 14.1 bn
€ -7.6 bn
€-0.4 €0.9 €3.2 €6.6 €6.8 €7.1 €7.4MOU Primary Balance Budget Targets in bn
-0.25% 0.5% 1.75% 3.5%
2015 2016 2017 2018 and beyond…
0.5%
The fiscal path based on primary surplus targets (as % of GDP) of:
4.2%
11Source: MinFin, Economic Research & Investment Strategy
Expected over performance in fiscal targets has led to the introductions of the “countermeasures” in order to hedge the risks from excessive policy tightening
2021Primary Balance Budget Target
€7.4 bn(3.5% of GDP)
12Source: MinFin, Economic Research & Investment Strategy
The Greek Economy Liquidity Challenge
2017
Jan – Aug 2018
Financing Needs & Sources (in € bn)
13Source: European Commission, Economic Research & Investment Strategy
Short & Long-Term Perspectives of the Greek Economy
Economic Outlook 2017- 2020, Alternative Scenarios
Three Challenges to our Outlook
Greek SMEs Panorama
Emerging Trends and Opportunities in the New Greek Landscape
14
SMEs are the backbone of the Greek economy
15Source: European Commission, Economic Research & Investment Strategy
SMEs are highly important to the Greek ‘non-financial business economy’.
They generate three quarters of added value and almost 90% of employment, compared to an average of 60 % and two thirds respectively throughout the rest of the EU.
SMEs are largely concentrated in wholesale and retail trade, where almost 40 % of SME employment and added value is generated.
Greece has the highest number of SMEs in proportion to the total number of enterprises amongst all other European countries.
Greece is ranked second in terms of value added after Malta.
99.7
99.75
99.8
99.85
99.9
99.95
Greece EU
Number of SMEs (% of total number of enterprises)
40
45
50
55
60
65
70
75
80
85
90
Greece EU
Number of people employed (% of total number in enterprises)
40
45
50
55
60
65
70
75
80
Greece EU
Value added (% of total value added)
*Enterprise Rating System: July 2017 with emphasis on SMEs
Γενική ρευστότητα: 0,7
Άμεση ρευστότητα: 0,4
Outperformers(8.6%)
a
676
b
2,817
c
3,189
d
1,214
good performers(35.7%)
medium performers(40.4%)
Underperformers(15.4%)
Even in 2015, the SME Universe exhibits a staggering degree of differentiation
SMEs (until €50mn turnover)
unrated based on the initial
sample, 2015
with non-calculable ratios:
9,820
Outside the acceptable ratio limits:
6,045
16Source: ICAP DATA, Economic Research & Investment Strategy
where our rating system can identify a substantial number of “bright spots”, “lost cases” and “turnaround candidates”
Γενική ρευστότητα: 0,7
Άμεση ρευστότητα: 0,4
Outperformer “a”• High levels of efficiency with the EBITDA margin
amounting to 24% and the return on equity to 19.3% on average
• None of the outperformers has interest coverage ratio less than 1
• Only a 0.9% of them has positive EBITDA and net losses before taxes
• High liquidity, with current assets covering around 3.9
times current liabilities
• Low levels of leverage, since its debt only amounts to half of equity
• High level of debt servicing, since EBITDA covers financial expenses by 21.4 times
Good performer “b”• More conservative, but satisfactory level of operating
profitability, with EBITDA margin at 15.4%
• Profitable efficiency of equity, with the return on equity at 13%
• Only a 0.7% of the good performers has interest coverage ratio less than 1
• A 7% of them has positive EBITDA and net losses before taxes
• Lower, but satisfactory level of liquidity, since the current assets amount to 2.5 times the current liabilities
• Higher debt levels, as liabilities exceed equity by 1.2 times
• Adequate debt service ability, since EBITDA covers financial expenses by 11.9 times
Medium performer “c”• Low levels of efficiency and profitability, since the EBITDA
margin is limited to 7.3% and the return on equity to 4.1%
• 22.1% of the medium performers has interest coverage ratio less than 1
• 17.7% of them has positive EBITDA and net losses before taxes
• Satisfactory, but limited liquidity, with current assets covering current liabilities by 1.5 times
• High net debt level, which exceeds EBITDA by 13.6 times
• Low level of debt servicing, since EBITDA covers financial expenses by 3 times
Underperformer “d”• Loss making, with EBITDA margin at -9.1%.
• Inefficient management of equity, with a negative return on equity at -16.1%
• Almost all of underperformers (82.5%) have interest coverage ratio less than 1
• The 18.3% of underperformers has positive EBITDA and net losses before taxes
• Liquidity difficulties, since the current liabilities exceed the current assets (current ratio: 0.7 times)
• Overleveraged, with debt 3.5 times higher than equity and net debt 25 times higher than EBITDA
17Source: ICAP DATA, Economic Research & Investment Strategy
Short & Long-Term Perspectives of the Greek Economy
Alternative Macro Scenarios
Three Challenges to our Outlook
Greek SMEs Panorama
Emerging Trends and Opportunities in the New Greek Landscape
18
Trends & Opportunities
Emerging Trends
&
Opportunities
Emphasis on export-oriented sectors: Tourism, farming, food processing, oil refining, basic metals &
minerals, chemicals, pharmaceuticals
Even in sectors with a competitive advantage Greece needs infrastructure upgrades, i.e. 5-star resorts,
yachting, convention centers, marketing & branding
In sectors with less stellar prospects such as retail and wholesale trade, fish-farming, passenger shipping,
telecoms, consolidation will create sectoral champions with improved margins
Privatized assets & natural resources development will require substantial investment (equity or loans)
Clusters can be created around privatized assets, i.e. ship-repair zone, logistics, cargo management, cruise
tourism
Regulatory pressures to liberalize industries such as electricity, natural gas, waste processing &
management, renewable energy
Banks commitment to reduce NPLs & Non Core Assets will create opportunities in real estate,
insurance and leasing, hotels and in over-indebted but viable companies
Greece needs to reorient itself from a consumption-based to an export-based
economy
Greece has a number of competitive advantages but needs to move up the
Value Added Chain
In several sectors and for a variety of reasons, a massive consolidation
process has started
More funding, either in the form of equity or loans, will be required
Greece is facing regulatory pressures to liberalize and privatize a number of
sectors
Greek banks have committed to reduce NPLs and restructure their balance sheets
19Source: Economic Research & Investment Strategy
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It is duly stated that: the investments described in the present document include investment risks, among which the risk of losing the entire capital invested. In particular, it is stated that;a. The figures presented herein refer to the past and that the past performance is not a reliable indicator of future performance.b. In case the figures refer to simulated past performance, that past performance is not a reliable indicator of future performance.c. The return on investments might be positively or negatively affected as a result of currency fluctuations, in case the figures are denominated in a foreign currency (other than Euro).d. Any forecasts in relation to future performance, may not be a reliable indicator of future performance.e. The tax treatment of the information as well as transactions pertained in this document, depends on each investor's individual circumstances and may be subject to change in the future. As a
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