Revised data on Greece show the economy growing slightly during the final quarter of 2015, with domestic demand overcoming the temporary closure of the banks, imposition of capital controls and the political crisis. GDP rose in real terms by 0.1%, seasonally-adjusted, underpinned by private consumption and investment, but to some extent it was ‘crisis-driven’ with households in particular preferring to withdraw money to spend than risk losing their deposits. Feeble growth was insufficient to avoid a second successive year on year contraction (of 0.8%) and a year average decline of 0.3%; this, after the economy had grown by 0.7% in 2014.

The tourism sector remained a bright spot last year in spite of the migrant crisis and the rise in Value-Added Tax on hotels, restaurants and tourist attractions. Visitor numbers increased by 7.1% to 23.6 million, with a 13% rise in arrivals from other EU countries, notably British holidaymakers benefiting from depreciation of the euro and Greece historically a favored destination for package deals. The perception of relative safety in comparison with Egypt, Turkey and other at-risk destinations was an attraction to all visitors, including growing numbers of Russians, Germans and Americans. Greece fortunately has numerous dispersed islands and mainland tourist areas that still give the impression of being unaffected by the twin crises, and although tourism on Kos fell by 3%, it rose on Lesbos.

Tourism contributed to a 6% rise in the balance of payments surplus on travel services in 2015, which increased to €14.2 billion (£15.8 billion), despite a decline in average expenditure per person. Adding in the reduced deficits on oil, shipping and other types of goods, reflecting falling import prices, the current account deficit narrowed from €3.8 billion ($4.2 billion) in 2014, or 3% of GDP, to only €7.5 million ($8.3 million) in 2015 which was a faster-than-expected adjustment owing to the terms of trade shock.

That said tourism weakened during the fourth quarter, and it remains to be seen whether it will hold up in 2016, which is a crucial element for employment growth. The unemployment rate was falling last year, but very slowly, leaving still around a quarter of the working population without a job, which with GDP contracting by around 1% this year is unlikely to see the situation radically improve. The key is still to improve public confidence, which will be determined by the government’s reforms and any resurgence of the political crisis. Worryingly, the Greek economic sentiment indicator compiled by the European Commission fell back in February following a two-month rise, notably falling among consumers and signaling another hit to domestic demand during the first half of this year.

Deflation is slowly eradicating however as the economy improves a little, VAT is raised and the effects of the oil price slide diminish. Consumer prices were falling by around 2% per annum early on in 2015 but decreased at a slower rate of 0.5% in February 2016, and mild inflation will gradually return if recovery becomes rooted during the second half of this year. As ever though it remains a big ‘if’.

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