Macro roundup: Credit flows break through bottleneck

Bank lending to small and medium enterprises increased in July

While we wait until next week to find out how much Greece’s economy contracted in the second quarter, some encouraging data this week is indicating that at least the financial system is still providing businesses with the credit they need.

Credit to the private sector grew at an annual rate of 1.5 percent in July, continuing its positive trend, according to data from the Bank of Greece. Lending grew 0.4 percent in June.

Most encouraging of all was that lending to SMEs grew 0.8 percent in July after contracting for most of this year. This had seemed like a worrying bottleneck earlier in the crisis, so last month’s expansion — which saw 733 million euros in new net lending — is a welcome sign that the government’s liquidity support measures are helping businesses affected by the pandemic get access to credit.

A few more data releases concerning monetary conditions are also worth pointing out. The Bank of Greece’s balance sheet showed that growth of the country’s TARGET2 deficit has slowed, widening just 3.7 billion euros in July after increasing almost 41 billion euros in the previous four months. Greek banks’ use of European Central Bank liquidity — an important driver of its TARGET2 balance — was unchanged, the first time since February that it didn’t increase.

This stability is partly because household and business deposits have continued to grow throughout the crisis, including by another 2.9 billion euros in July to 151 billion euros. They’ve now increased more than 7 percent since January and are at their highest level since December 2014, when Greece was near the start of a bank run.

Flat sentiment

While Greece’s economy is benefiting from ample monetary policy support, it will take something else to awaken damped animal spirits. The European Commission released its economic sentiment survey for August today, which confirmed the L-shaped trend seen both in July’s release and the PMI data for that month. Compared to other European countries, economic sentiment fell less far but is rebounding less slowly.

Overall, the index remains higher for Greece than the euro-area average. This reflects the fact that economic sentiment in Greece was higher going into the crisis, and the gap between is now the smallest it’s been since Kyriakos Mitsotakis’s New Democracy government was elected in July 2019.

August also saw a slight reversal in the construction sector’s rebounding confidence, which had returned to pre-pandemic levels in June.

Budget forecasts

Kathimerini reports that the Finance Ministry now expects the budget deficit this year to be about 8 percent of GDP, and the primary deficit, which excludes interest on the debt, to come in at 5 percent, or 9 billion euros.

My gut reaction to this based on back-of-envelope maths was that it looked on the optimistic side (the central government’s primary January-July stood at 7.5 billion euros, revised this week from a preliminary estimate of 8.2 billion euros) . Still, unchartered economic waters make forecasting difficult and 2020 could still have a surprise or two in store for us.

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Next week’s key data

  • Elstat releases retail sales data for June

  • IHS Markit releases Greek PMI data for August

  • It’s the one we’ve all been waiting for, Elstat releases second-quarter GDP data

Elsewhere on the web

  • John Psaropoulos takes a look at the standoff between Greece and Turkey

  • This week Delivery Hero bought InstaShop, a Greek startup, in a transaction that’s the largest exit for a one of the country’s startups

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