Greek GDP poised to fall in 2015 and 2016

Greece's European Commission economic sentiment dropped by 11.7 points in Q3 (after falling c.5 points in both Q1 and Q2 15). While this indicator had been misleading in terms of capturing Q2's positive GDP rebound - mainly led by temporary private consumption behaviour - a collection of other indicators all point towards significant deterioration in Q3: ie, economic confidence, industry capacity utilisation, manufacturing production, retail sales, car registration, and tourist arrivals.

Greek GDP is likely to contract by 3.0% q/q in Q3 15, led by investment and private consumption, argues Barclays. On the bright side, Greece's economic sentiment jumped back to 83.1 in September, cancelling the August blip, increasing for the first time in six months and suggesting the worst is probably over. This concurs with our baseline that the economy momentum should be less negative in Q4 (-1.1% q/q), although a VAT rate increase would likely keep private consumption in negative territory.

Uncertainty about the recovery is large, depending on programme implementation and a timely positive outcome for the first review, including a banking sector resolution. Assuming a gradual recovery in 2016 with no negative quarter, the negative carryover from 2015 (- 2.1%) implies that Greece's recession is in fact likely to be sharper in 2016 (-1.7%) than in 2015 (-0.8%), estimates Barclays.