GREECE Macro Flash GDP Q4:2017. Greece s recovery gains momentum, buoyed by increased business activity

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1 :Q :Q :Q :Q :Q :Q :Q :Q :Q :Q 7:Q 7:Q 7:Q 7:Q GREECE Macro Flash N A T I O N A L B A N K O F G R E E C E GDP Q:7 Greece s recovery gains momentum, buoyed by increased business activity Overview of latest macroeconomic trends in pages - Nikos S. Magginas PhD Head of Greece Macro Analysis (+) nimagi@nbg.gr Effrosyni Alevizopoulou PhD (+) alevizopoulou.e@nbg.gr GDP increased by.9% in Q:7 and by.% in FY:7, the strongest performance in years, despite tighterthan-initially-expected fiscal conditions. Gross fixed capital formation rebounded impressively in Q:7 (+8.9% ), contributing. pps to annual GDP growth in this quarter on the back of buoyant non-residential investment (+.%, the strongest rise in years), which increased its share in GDP to an 8-year high of.%. The net contribution of investment in GDP growth in Q:7 is still sizeable (.7 pps), even after subtracting the impact from higher imports of capital goods (mainly transportation equipment) and other inputs related to investment. On an annual basis, investment, along with inventory accumulation, contributed.7 pps to FY:7 growth (c. % of total output growth adjusted for their corresponding import content). Increasing business profitability, higher levels of capacity utilization and an effective acceleration in public investment activity mainly due to a shift of funding from 7 are expected to support average annual growth in total investment of.8% in FY:8. On the other hand, consumer spending decelerated over the course of 7, declining by.% in Q:7 and remained flat in FY:7, for a second consecutive year, reflecting still significant fiscal pressure and a negative impact on disposable income from positive CPI inflation, which offset positive labor market trends. According to NBG estimates, average GDP growth in FY:8 is estimated in the vicinity of.%, of which. pps corresponds to a positive carry from FY:7. Aikaterini Gouveli MSc (+) 9 gouveli.aikaterini@nbg.gr Eleni Balikou MSc (+) 98 balikou.eleni@nbg.gr NBG Economic Analysis Department Greece Macro Analysis Team 8 Eolou Str., Athens, Greece GDP growth decomposition by expenditure component contributions in pps Consumption Net Exports Investment Inventories Other expenditure Growth

2 Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Q: Q: Q: Q: Q: Q: Q:7 Q:9 Q: Q: Q: Q: Q: Q: Q:7 :Q :Q :Q :Q :Q :Q :Q :Q :Q 7:Q 7:Q Greece s recovery is continuing, with GDP increasing by.9% in Q: Greece s gross fixed capital formation rebounded impressively in Q:7, bringing the share of nonresidential investment to GDP to an 8-year high of.% 8 8 GDP growth: and q-o-q GDP (q-o-q, s.a., right axis) q-o-q GDP growth (, s.a., left axis) The acceleration in public investment activity in Q:7 is estimated to have added about. pps in GDP growth on an annualized basis 8 Total investment excl. residential construction % GDP Total investment excl. residential construction (%GDP, left axis) Total investment excl. residential construction (, right axis) GFCF & PIP disbursements as % of quarterly GDP % GDP PIP Disbursements (% GDP, right axis) GFCF (% GDP, left axis) % GDP 8 Greece s economy continues to gain momentum, buoyed by increased business activity that compensates for subdued private consumption Greece s recovery is continuing, with GDP increasing by.9% in Q:7. Output expanded for a fourth consecutive quarter (+.% on a seasonally-adjusted quarterly basis). In FY:7, GDP increased by.%, the strongest performance in years, despite tighter-than-initially-expected fiscal conditions reflected in the estimated fiscal tightening of.% of GDP in FY:7 (an estimated improvement in the General government primary surplus, adjusted for one-offs, from.% of GDP in to.% of GDP in 7). The analysis that follows indicates that a key growth driver is business activity, combined with higher investment spending, while consumer spending remains relatively weak. Indeed, gross fixed capital formation rebounded impressively in Q:7 (+8.9% ), contributing. pps to annual GDP growth in this quarter, following a temporary slowing in Q and Q:7. Importantly, non-residential investment was the main source of investment (+.%, the strongest rise in years), bringing the share of non-residential investment to GDP to an 8-year high of.%. The net contribution of investment in Q GDP growth is still sizeable (.7 pps), even after subtracting the impact from higher imports of capital goods and other inputs related to investment. On an annual basis, investment, along with inventory accumulation, contributed.7 pps to FY:7 growth (c. % of total output growth adjusted for their corresponding import content). Indeed, it appears that spending on new transportation equipment has been the dominant driver of investment growth in both Q:7 and FY:7. The acceleration in public investment activity in Q:7 is estimated to have added about. pps in GDP growth on an annualized basis. In this vein, it is encouraging that business activity showed further signs of sustainable improvement in Q:7. Indeed, gross GREECE NBG Macro Flash March 8 p.

3 Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Q:7 Q:7 May- Aug- Nov- Feb- May- Aug- Nov- Feb- May- Aug- Nov- Feb- May- Aug- Nov- Feb-7 May-7 Aug-7 Nov-7 Feb-8 Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Spending on new transportation equipment has been the dominant driver of investment growth in both Q:7 and FY:7 - - Contribution in annual change in GFCF by investment component contribution in pps - - Capacity utilization in the Greek industry in H:7 exceeded its long-term average and, in conjunction with a new improvement in business conditions in Q:8, presages a further increase in investment in Business activity showed further signs of sustainable improvement in Q: Index Other investment (in pps) Transport equipment (in pps) Machinery & technology equipment (in pps) Residential construction (in pps) Non-residential construction (in pps) GFCF () PMI & Capacity utilization PMI, deviat. from (left axis) Capacity utilization (right axis) Gross value added by sector of economic activity contributions in pps % Industrial (left axis) Construction (left axis) Household services (left axis) Accommodation, trade, transportation (left axis) Other sectors (left axis) Total value added (, right axis) operating surplus and mixed income created by the corporate sector a good proxy for their profitability and thus, of their willingness and capacity to invest increased by.% in Q:7 and by.%, on average, in FY:7, recording the first annual expansion since 8. Moreover, the level of capacity utilization has increased to levels which in Q:7 exceeded the long-term average in specific, more competitive, industrial subsectors, while residential construction is also expected to bottom, as indicated by an average increase in residential building permits issuance (7.7% in M:7). Finally, public investment spending is also expected to increase by.9% in FY:8 on a cash basis (mainly due to a shift of EU funding and related payments from 7). In line with these positive trends, total gross fixed capital formation is expected to grow by a healthy.8% in 8, according to NBG estimates. On the other hand, consumer spending remains weak, decelerating over the course of 7, declining by.% in Q:7 and by -.% s.a. q-o-q -- following declines of -.% q-o-q and -.% q-o-q, respectively, in Q and Q:7. In FY:7, private consumption remained flat, for a second consecutive year, reflecting still significant fiscal pressure (personal taxes and social security contributions increased by an estimated.% of GDP in FY:7 compared with ). Moreover, the return of consumer price inflation to positive territory (.% in 7), following years of deflation, took an additional toll on household disposable income. This offset the supportive impact of higher employment (.% on average in M:7). This trend suggests that the financial position of Greek households is still fragile. Sluggish private consumption is expected to continue in 8, in view of the continuing fiscal effort needed to achieve the.% primary surplus target, combined with subdued wage trends in the face of still high unemployment. In fact, the effective increase in fiscal pressure is relatively higher for medium-income earners, who typically play a central role in the consumption recovery process. GREECE NBG Macro Flash March 8 p.

4 :Q :Q :Q :Q :Q :Q :Q :Q :Q :Q :Q 7:Q 7:Q 8:Μ :Q :Q :Q :Q :Q :Q 7:Q 9:Q :Q :Q :Q :Q :Q :Q 7:Q Increasing business profitability will support investment decisions in A further strengthening in economic sentiment and sustainable employment growth point to an acceleration in GDP growth in GFCF & gross operating surplus Gross fixed capital formation (q m.a., right axis) Gross oper. surplus & mix. income (q m.a.,left axis) Employment, GDP growth & economic sentiment *Q:7: October- November 7 data Index Employment growth, (left axis)* GDP growth, (left axis) EC Economic sentiment indicator (right axis) Net exports subtracted. pps from GDP growth in FY:7 (and. pps in Q:7), despite the solid performance of the tourism sector and healthy growth in goods exports, as the annual growth in imports of goods and services outpaced that of exports (7.% and.9%, respectively, in constant price terms). NBG Economic Analysis high frequency indicator of economic activity, incorporating the latest information from monthly macroeconomic data releases for early 8, points to an acceleration in GDP growth to c..% in Q:8. This projection mainly reflects the increase in economic sentiment and manufacturing PMI indices, to ½ and 7½ year highs, respectively, in February 8. In addition, favorable prospects for tourism activity, reflected by a double-digit increase in early bookings for 8, along with favorable growth trends in the euro area, are expected to offset the drag on growth from the additional fiscal effort and higher import spending that typically accompanies the recovery process. Employment growth should continue at the current pace of c..%, reducing unemployment to below %, on average, in 8. The above factors are estimated to bring GDP growth in FY:8 in the vicinity of. %, of which. pps corresponds to a positive carry from FY:7. GREECE NBG Macro Flash March 8 p.

5 GREECE Macro View - Economic Outlook March 8 Greece s recovery on track, supported by investment activity, policy credibility improves and financial markets assign an increasing probability of a successful completion of the rd economic adjustment programme GREECE NBG Macro Flash March 8 p.

6 Greece: Tracking the economy s cyclical position Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan-7 Feb-7 Mar-7 Apr-7 May-7 Jun-7 Jul-7 Aug-7 Sep-7 Oct-7 Nov-7 Dec-7 Jan-8 Feb-8 PMI (index level) 9,, 7, 8,,, 8, 9, 9,7 8,, 8,7, 9, 8, 8, 9,, 7,7,7 8, 9,,,,,8,,,,, Industrial confidence (index level) -, -, -9, -, -, -, -, -7,8-7,8 -, -9, -7, -, -, -,7-7,8 -,7 -, -, -,7 -, -, -7, -,7 -,7 -,7 -,7 -,9,,, Manufacturing production (yoy),7,7 -,,,,, -,7 7, 7, 8,9,8,,9 7,, -,8,9,, -,,,,8,9, -,,8, Industrial production (yoy),, -,7,,9, -,9 -,,7, 8,,, -,,9,, 7,,,,8,,8,,,,7,, Services confidence (index level) -,8 -, -, -, -, -, -, -7, -, -, -7, -8, -, -,9,, -, -,,9, 8,9, 9, 7,,9,,,, 8,9 8,9 Consumer confidence (index level) -,8 -, -9, -, -, -,9 -,8-7,9-7,7-7,9-8, -9, -7, -,9 -, -,9 -, -7,8-7, -7, -7, -9,7-8,8 -, -7, -,7 -, -,8 -, -, -, Retail confidence (index level) -, -, -, -,8 -, -,,,,,,7 8, 9,,,7,9 9,8,9,9,7,, -, -, -,,,, -,,8,8 Retail trade volume (yoy) -, -, -, -,, -,7 -,8 -, -, -, -, 9, -,,,, -, -, 9,9 -,,,,7,,8 -,8 -, -,,8 Construction Permits (yoy) -8, -, -8, -, 7, -, 8, -,7-7, -9,8 -, 8,, 8,7,7 9, -,9 -, -, 7,,,7,, 9, -, 9,7, House prices (yoy, quarterly series) -, -, -, -, -, -, -, -, -, -, -, -, -, -, -, -, -, -,9 -,9 -,9 -, -, -, -, -, -, -, -, -, Construction confidence (index level) -7, -,8-9, -7, -9, -7,9-7, -,9 -,9-9, -9,8 -, -, -9, -7, -,8 -, -, -9,7-9,8 -, -7, -, -9,7-9, -,9 -,7-9, -8, -, -, Employment (),,,7,7,,7,,,,,,,8,8,,8,,,7,,,,,,7,,, Interest rate on new private sector loans (CPI deflated),,,,7,,7,,,,7,,,9,7,,7,8,7,,7,,,,7,9,7,,,, Credit to private sector () -,7 -, -, -,7 -, -, -,8 -, -, -, -, -, -,7 -,7 -,8 -, -, -,7 -, -,7 -, -,7 -, -, -, -, -, -7, -,7 -,8 Deposits of domestic private sector () -7, -, -,9-7, -, -7, -, -, -9, -,,,7,,,,,,,9,,,,,,,,,8,7,9 Interest rate on new time deposits (households, CPI deflated),7,9,,7,,7,,,,7,,9,8,8,,,7 -, -, -, -, -, -, -, -, -, -, -,,,8 Economic sentiment index (EU Commision, Euro area) Exports (other (excl.oil&shipping) m mov.avg 7,8,,, -, -,9 -, -, -, -, -, -, -,,,9,,,,8,, 7,, 9,, 9,,8 9, 9, Imports (other (excl.oil&shipping) m mov.avg -,9 -, -, -8, -, -,7 -, -,8 -,9 -, -,9,,8 8,8 7,9 8,8, 7,,8,,,,, 7,, 9, 9, 9, NBG Composite Index of cyclical conditions -9, -9, -7, -, -,7 -,9 -, -, -, -, -,7 -, -8, -9,8-9, -, -,8-9, -, -7, -, -, -,7 -, -,,,7,9,, Color map scale Sources: NBG, BoG, ELSTAT, EU Commission, IOBE Rapid contraction Moderate contraction Slow contraction Stabilization Slow expansion Moderate expansion Rapid expansion Q Q Q Q Q Q Q Q Qf Qf Qf Qf GDP (real, %, s.a.) -, -,,, -, -,9, -,9,,,,9,9,,,8 GDP (real, % q-o-q, s.a. ) -, -,, -,,,7,,,,9, -, Domestic Demand () -,,7,, -,,7, -,,,,,9,,,8, Final Consumption () -, -, -,,7 -, -,8, -,,, -,9 -,,,,8, Private Consumption () -,,,,7 -, -,,7,,9,8 -, -, -,,,9, Fixed Capital Formation () -,, 9,7,8-9,9,,7-9,,,8 -, 8,9,, 8, -,9 Residential construction -,7 -, -8,7,8 -, -, -,9 -, -,8 -, -7, -, Total GFCF excluding residential,,,8,9-9,,7,8-9, 8,, -,, Inventories * (contribution to GDP) -,9,9,7,,7, -,,, -,,7 -,,,,, Net exports (contribution to GDP),7 -, -, -,, -,7 -, -, -,, -,7,, -, -,, Exports (),9 -,9,9, -9, -, 9,,9, 9,7 7,, 7,,,, Imports (),, 7,, -9, -,9,,,,8 9,,9, 7, 7,,7 *also including other statistical discrepancies / Source: ELSTAT, NBG estimates Source: EL.STAT. and NBG Research Estimates Greece: Growth Outlook 7 8f 7 8f GREECE NBG Macro Flash March 8 p.

7 Jun- Oct- Feb- Jun- Oct- Feb- Jun- Oct- Feb- Jun- Oct- Feb-7 Jun-7 Oct-7 Feb-8 Dec- Feb- Apr- Jun- Aug-7 Oct-8 Dec-9 Feb- Apr- Jun- Aug- Oct- Dec- Feb f :Q :Q 8:Q 9:Q :Q :Q :Q :Q :Q :Q 8:Q :Q :Q :Q :Q :Q :Q :Q :Q :Q :Q 7:Q 7:Q 7:Q 7:Q Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Q:7 Q:7 Greece s GDP increased by.% in 7, the strongest pace in years, buoyed by higher investment spending and inventory accumulation, which added. pps and.7 pps, respectively, to annual production growth. In Q:7, GDP growth accelerated to.9%, with investment contributing. pps, offsetting the drag from lower private consumption (-.7 pps or -.% ) GDP figures from the production side point to a sustainable rebound in business activity, which brought annual value added growth to a -year high of.% in FY:7 (from -.% in FY:), on the back of strong expansion in the manufacturing, accommodation, transportation, retail trade and household services sectors Composition of output growth by expenditure component contributions in pps Gross value added by sector of economic activity contributions in pps External imbalances have been corrected, fixed capital formation has picked up in 7, and private consumption recorded a small decline as a percentage of GDP. A recovery in business investment is estimated to be the key determinant of the economic performance in 8- Greek GDP spending side decomposition (constant prices) 8 % GDP % GDP 7,,,8 8, 7, 9, 8,9 8, 8,7 8,7 8, 8,8 8, 7, Private consumption (right axis) Investment (left axis) Exports (left axis) Imports (left axis) Public consumption (left axis) Industrial confidence increased to its highest level since Q:7 and services confidence returned to near its Q:7 high, on the back of favorable tourism prospects and improving demand conditions in domestic services. Consumer sentiment has picked up since Q:7, but continues to reflect a still vulnerable position of Greek households in early Consumption Investment Growth Greece: main sectoral confidence indicators (ESI components) EC sectoral confidence indicators, index level Net Exports Inventories* *including other statistical discrepancies Economic sentiment increased to a ½-year high, with all major sectoral components of activity showing a coordinated expansion, which adds to the evidence that the recovery process is gaining pace in early Economic sentiment and real GDP growth Sources: EL.STAT., EU Commission GDP growth (left axis) EC Economic sentiment indicator (right axis) PMI reached a 7½ year high of. in February 8, recording the strongest improvement since June, supported by a broad-based improvement in new orders in both domestic and foreign markets. This significant improvement indicates that business activity remains on a steadily upward trend, and is likely to gain further traction in the following months, supported by favorable demand conditions in the euro area Industrial (left axis) Construction (left axis) Household services (left axis) Accommodation, trade, transportation (left axis) Other sectors (left axis) Total value added (, right axis) index PMI & Industrial Confidence Index Index Industrial Retail Services Consumer Construction PMI, deviat. from (left axis) Industrial confidence, Index level (right axis) GREECE NBG Macro Flash March 8 p. 7

8 H: H: H: H: H: H: H: H: H: H: H: H: H: H: H:7 H:7 Q:7 Q:8 Q:8 Q:9 Q: Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Aug- Oct- Dec- Feb- Apr- Jun- Aug- Oct- Dec- Feb-7 Apr-7 Jun-7 Aug-7 Oct-7 Dec-7 Feb-8 Sep- Oct- Nov- Dec- Jan-7 Feb-7 Mar-7 Apr-7 May-7 Jun-7 Jul-7 Aug-7 Sep-7 Oct-7 Nov-7 Dec-7 Aug- Dec- Apr- Aug- Dec- Apr- Aug- Dec- Apr-7 Aug-7 Dec-7 Q: Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 In the second half of 7, capacity utilization in manufacturing exceeded its -year average, with the indicators of activity in the services sector remaining on a steadily upward trend, supported by favorable tourism prospects, boding well for an expansion in business investment in 8 New capital formation will also be supported by a pick-up in public investment activity, following a weaker-thanexpected contribution in FY:7, when PIP payments were.% of GDP lower than the respective Budget 8 target, mainly due to the delayed disbursement of EU funding. Accelerating inflows of FDI recorded during 7 are expected to remain supportive of domestic investment spending during Services confidence and capacity utilization index % Inflows of foreign direct investment +. bn in FY:7 mn eur Country risk is on a downward trend, benefitting from financial asset valuations and liquidity conditions. This improvement is expected to support investment decisions, offsetting the continuing pressure from the fiscal side. However, the economy remains very sensitive to external shocks, such as the increase in financial market volatility since early-february 8. Significant progress in cost containment, intensive business restructuring and consolidation have increased the competiveness of a growing number of larger firms Non-financial corporate, Greek Gov. bond yields & FTSE Large Cap Index Services confidence (left axis) Capacity utilization (right axis) ECB's CSPP FTSE/ATHEX Large Cap (left axis) yr Greek Government bond yield (right axis) Greek non-financial corp. bond yield based on the BoG Composite Index (right axis) Private construction activity shows signs of bottoming out, despite still weak sentiment. In this regard, private building permits issuance accelerated (.%, in volume terms, in M:7 and.7% in Q:7, with the residential sub-component recording an increase of 7.7% in M:7), presaging the first positive contribution of construction in GDP in 8, for the first time in ten years % 8 Manufacturing production increased by.% in FY:7 for a fourth consecutive year, with activity in the sub-sectors of basic metals, pharmaceuticals, oil and food products recording the strongest increases of.%,.9%,.% and.8%,, respectively, in the same period. This performance largely reflects increasing export activity, as suggested by external trade statistics and survey data for manufacturing export orders, which strengthened further in late-7 and in the first months of in pps Foreign direct investment liabilities Key sectoral contributions in industrial production growth Pressures on house prices eased further in Q:7 (-.% and -.% in FY:7), office prices declined by.7% in H:7 (latest available data), and retail space prices showed a small increase (+.7% ). However, a slow improvement in households financial positions, the still high supply overhang, along with uncertainty related to the market impact of e-auctions and forthcoming adjustment in imputed real estate prices for tax purposes, continue to weigh on the recovery process Fabricated metals (in pps, left axis) Oil products (in pps, left axis) Non-metallic minerals (in pps, left axis) Food (in pps, left axis) Pharmaceuticals (in pps, left axis) Basic metals (in pps, left axis) Chemicals (in pps, left axis) Manufacturing production (, right axis) 9 - Cement production, non-residential construction & construction confidence index Residential & commercial real estate prices Non-residential construction (, left axis) Cement production (, left axis) Construction confidence (index, right axis) *Q:7 estimate for cement production House prices (total, ) Office prices (Athens, ) Retail prices (Athens, ) GREECE NBG Macro Flash March 8 p. 8

9 Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan-7 May-7 Sep-7 Jan-8 Oct- Nov- Dec- Jan-7 Feb-7 Mar-7 Apr-7 May-7 Jun-7 Jul-7 Aug-7 Sep-7 Oct-7 Nov-7 Dec-7 Jan-8 Χιλιάδες Jun- Jan- Aug- Mar- Oct- May- Dec- Jul- Feb- Sep- Apr-7 Nov-7 Dec- Apr- Aug- Dec- Apr- Aug- Dec- Apr- Aug- Dec- Apr-7 Aug-7 Dec-7 Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar-7 Jun-7 Sep-7 Dec-7 The tourism sector overperformed optimistic estimates, with revenue increasing by +.% in FY:7 (.8% of GDP or.bn higher than in ), exceeding arrivals growth (+9.7% in 7) for the first time since, while available data for early bookings for 8 show that the favorable momentum is maintained, with demand from major markets showing a double digit increase Non-oil exports and imports (nominal terms, balance of payments data) increased by 9.% and 8.%, respectively, in FY:7, reconfirming the high elasticity of import demand to GDP trends and a high import content of Greece s goods exports and industrial supplies, along with a resilient export recovery 8 Travel receipts Goods trade (excluding oil and ships) millions The current account balance recorded a deficit of.8% of GDP in FY:7, slightly less than FY: (-.% of GDP). The significant expansion of the surplus in the services balance (.% of GDP higher than in FY:), which was supported by the increase in tourism revenue (.% of GDP higher than in FY:) and in the transportation surplus (.% of GDP higher than in FY:) offset a larger deficit in the non-oil trade balance (.% of GDP higher than in FY:) and in the oil balance (.% of GDP higher than in FY:) Current Account -, -,8 -, Non-oil Trade Balance -7,9-8, -8,7 Non-oil Exports,,,7 Non-oil Imports 8, 9,, Oil Balance -, -, -, Services Balance 8,8 9,8, Primary Income Balance,,, Secondary Income Balance -, -, -, Capital account,,, Source: Bank of Greece & NBG estimates Travel receipts, change in level (in mn, left axis) Travel receipts ( change, right axis) Balance of Payments (as % GDP) 7 8f Inflation returned to negative territory in January 8 (-.% ) following an increase of.% in 7 mainly due to a stabilization in oil prices and a subdued increase in core inflation (.% in January 8) that reflects sustainable cost containment by Greek firms, along with the deflationary impact of the euro appreciation on import costs The improvement in the Greek labor market continues unabated, gathering pace in July-November 7 (increase in employment of.% during this period from.9% in H:7) and the unemployment rate declined further to.9% in July-November 7 its lowest level since. A stabilization in wages and a pick-up in working hours provide some nascent signs of improvement in job quality - - Exports (, m m.a.) Imports (, m m.a.) Employment growth Unemployment rate Employment growth (left axis) Unemployment rate (right axis) Following a cumulative increase of.9bn in 7 with household deposits increasing by.7bn and corporate deposits by.bn private sector deposits decreased by.bn in January 8, reflecting an expected partial reversal of a seasonal boost to household deposits from payments related to social transfers by the Greek State (namely the social dividend and refund of the higher-thanjustified healthcare contributions on pensions) % pps Headline & core inflation monthly flows in billions Private sector deposits Contribution of fuel in CPI (in pps, left axis) CPI inflation ( change, right axis) Core inflation ( change, right axis) Non-financial & insurance corporations Households Private sector GREECE NBG Macro Flash March 8 p. 9

10 Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan-7 May-7 Sep-7 Jan-8 Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun-7 Dec-7 In January 8, the annual pace of decline in credit to the private sector remained the same as in December 7 (-.8% ), however, significantly slower compared with -.% in June 7 and -.% in December, on the back of an increase in corporate lending (.% in January 8 vs..% in December 7), while credit to households continues to contract (-.% in January 8) The Greek banking system s financing from the Eurosystem decreased further to.7bn in December 7, from.bn in December, with ELA declining by.bn since December (-.bn since June ) to.bn, partly reflecting improving market access, and a pick-up in deposits % % -% -% -% -% -% -% Bank credit to private sector % % -% -% -% -% -% -% 8 8 Greek banks' borrowing from the Eurosystem bn capital controls % of total assets Total private sector Non-financial corporations Households The official sector (including SMP/ANFA holdings) holds about 8% of Greek debt or bn in February 8. A pre-emptive build-up of a cash buffer of, at least, bn before the rd programme completion in August 8 appears attainable, following the issuance of a 7-year benchmark bond, of bn on 8 February 8 and the continuing fiscal overperformance that led to a cash surplus in the primary budget of General Government of.9bn in FY:7. Moreover, Greece is expected to receive.9bn for this purpose, following the successful completion of the rd review of the programme, while a further 8.bn is expected to be made available upon the completion of the last review in April-August 8 IMF:,% EFSF:,% GLF:,7% Other loans:,% Structure of Greek debt holders as of February 8 Other bonds:,8% ANFA&SMP:,% ESM:,% T-bills:,7% ELA (left axis) ECB (left axis) Eurosystem funding (% of total assets, right axis) The General Government debt-to-gdp ratio is estimated to peak at 8.% at end-7 and follow a downward trend from 8 onwards, declining to % by, to.% by and to 9.% of GDP in, according to the baseline scenario A of the latest DSA analysis by the ESM. Gross financing needs are projected to reach levels slightly above the sustainability thresholds of % and % of GDP, respectively, in the medium and longer term. The Eurogroup of January 8 confirmed the beginning of technical work on the creation of a contingent growth-adjustment mechanism, which will relate to the provision of future debt relief on Greece s future economic performance, and could be put in place following the successful completion of the rd programme The successful implementation by the ESM of the short-term package of measures to reduce Greece s public debt servicing costs contributed to a further smoothening of the long-term debt redemption profile and a sustainable lowering of interest costs. The prospective benefit from the full implementation of the above short-term debt relief measures on Greece s gross public debt is estimated at pps of GDP by. In this context, the implementation of the short-term measures also contributed to an increase in the share of Greek debt at a fixed rate of 8.% of total debt in December 7 from % in December euro bn 8 8 % GDP Greece: Sovereign debt & financing needs % GDP Debt-to-GDP ratio - Scenario A (left axis) Debt-to-GDP ratio - Scenario B (left axis) GFN-to-GDP ratio - Scenario A (right axis) GFN-to-GDP ratio - Scenario B (right axis) Source: ESM, DSA Analysis, January 8 Hellenic Republic debt amortization profile as of February 8 (including the impact of the impementation by the ESM of the "short-term debt measures" package and the Swap on PSI bonds in November 7) ANFA&SMP Other bonds IMF GLF EFSF&ESM Other loans Total Debt amort. (end-) GREECE NBG Macro Flash March 8 p.

11 Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb-7 Aug-7 Feb-8 Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan-7 Jul-7 Jan-8 //7 8//7 7//7 //7 //7 //7 //7 //8 //8 9//8 8//8 //8 //8 //8 //8 Greek Government bond yields declined in January 8 to the lowest level since, reflecting a boost in confidence from the successful swap of the Greek PSI bonds and a timely completion of the rd review of the economic adjustment programme. However, the assessment of Greek risk remains very sensitive to the increase in volatility in international financial markets since mid-february 8 Greek Government bond yields m T-bill yr Greek Gov.bond yr Greek Gov.bond yr Greek Gov. bond 7yr Greek Gov.bond Moody s upgraded Greece's sovereign bond rating by two notches, to B on February, 8, while S&P and Fitch upgraded Greece by one notch to B on January 9 and February, respectively. These ratings are now notches below investment grade for S&P and Fitch, and notches below for Moody s. All three agencies maintained a positive outlook. The key drivers for the rating decisions were economic and fiscal improvements, alongside improving prospects of further official debt relief. % The credible improvement in Greece s fiscal position, in conjunction with the still supportive financial and monetary environment in the euro area, suggest that there is further scope for improvement in the relative valuation of Greek sovereign debt. A sustainable recovery of economic activity and a credible operational specification of the growthadjustment mechanism for debt-servicing would be the catalysts for a further improvement in Greece s access to market financing,,,,,, y gov. bond yields & sovereign ratings in the Euroarea & the US yield, % GR: Mar-8 GR: Jan-8 Rating scale: from (default) to (highest quality - AAA), PT, ΙΤ SI ES FR, IE AT, SK BE DE FI NL, Rating scale In January 8, the Greek State budget recorded a primary surplus of.9bn or.% of GDP,.% of GDP higher than the respective target of the 8 Budget. Total tax revenue exceeded the respective target by.bn (.% of GDP), mainly due to higher-than-budgeted revenue from the settlement of tax arrears from previous years, while lower primary expenditure contributed another.% of GDP to the primary surplus. Moreover, the surplus in the PIP balance was.% of GDP above target, due to accelerating revenue from the EU that exceeded the respective payments by.bn. Government arrears, including tax refund arrears, decreased by.bn in 7 (to.bn, the lowest level since the statistical recording of this data), which is.bn greater than the funds disbursed by the ESM for this purpose. US 9 Greece's Sovereign Ratings index value: corresponds to AAA rating and to selective default status 9 8 Government net revenue and primary expenditure % GDP, m m.a. 8 Fitch Moody's S&P Latest B Β B Outlook positive positive positive Gov. Net Revenue Gov. Primary Expenditure GREECE NBG Macro Flash March 8 p.

12 Greece: Dates to Watch 8 March Euro Working Group EL.STAT. release: Quarterly National Accounts (Q:7) ECB Governing Council: monetary policy Eurogroup ECOFIN 7mn IMF repayment due ECB Governing Council: nonmonetary policy European Council April - ECB Governing Council: non-monetary policy IMF Spring Meeting & World Bank s EL.STAT. release: General government deficit and debt 7 st notification ECB Governing Council: monetary policy May ECB Governing Council: nonmonetary policy Completion of GR-stress tests ECB Governing Council: nonmonetary policy Eurogroup ECOFIN First submission of the 8 EU-wide stress test s results to EBA by EU banks June early late EL.STAT. ECB release: ECB Governing Quarterly Governing Council: European National Council: Eurogroup ECOFIN nonmonetary Council Accounts monetary (Q:8) / policy policy 8mn IMF repayment due Completion of th Review GREECE NBG Macro Flash March 8 p.

13 Greek Economy: Selected Indicators 7 8f Q Q Q Q year aver. Q Q Q Q year aver. Q Q Q Q year aver. Most recent Real economy ( period average, constant prices) GDP,, -,, -, -, -,9, -,9 -,,,,,9, Q:7,9, Domestic demand, -, -,, -, -,,7, -,,7,,,,9, Q:7,9, Final Consumption,,9 -,, -, -, -,8, -, -,,, -,9 -, -, Q:7 -,,7 Gross fixed capital formation,8-9, -,8, -, -9,9,,7-9,,,,8 -, 8,9 9,7 Q:7 8,9,8 Exports of goods and services,8,7-8, -,,9-9, -, 9,,9 -,9, 9,7 7,,,9 Q:7,, Imports of goods and services,8, -, -,, -9, -,9,,,,,8 9,,9 7, Q:7,9, Coincident and leading indicators (period average) Retail sales volume (),, -, -, -, -, -,,,7 -,,8,,9 -,, Dec,8 Retail confidence (-yr. average: -,8) -, -, -, -, -,,9,,8,,8,8, -,,, Feb,8 Car registrations () 9,, -,,,8 -, 9,,8,,7 7,8,,8 Nov 8,9 Consumer confidence (-yr. average: -,) -7, -, -, -, -,7-7, -7, -8, -, -8, -7,8-7, -7, -,7 -, Feb -, Industrial production (), -,,,, -,,,,8, 9,,9,,, Dec, Manufacturing production (),7 -, -,,,8, 7,8,,,,,7,,, Dec, Capacity Utilization (-yr. average: 7,7) 7, 7,,,,,9, 7, 9, 7, 8, 8,7 7, 7, 9, Dec 7, Industrial confidence (-yr. average: -9,) -9, -, -, -, -, -9, -9, -, -, -7,8 -, -7,8 -, -,8 -, Feb, PMI Manufacturing (base=) 8, 7, 7, 8,, 9, 9, 9, 8,7 9, 7, 9,,8,, Feb, Construction permits () 9, -, -,,9 -, -,9 -,9 8, -9, -7,,7,,7 Nov, Construction confidence (-yr. average: -,) -,9 -,8 -,9-8, -7, -7, -, -,9 -, -7, -, -8,8 -,9 -, -, Feb -, PIP Disbursements () -,9-7, -,,9 -,8 7, 8,,8 -,9 -,8 -,9 -,9-7,,7 -, Jan 7, Stock of finished goods (-yr. average:,),, 7,,,,,,9,,7,7,8,7,, Feb, External sector (period average) Current account balance (% of GDP) -,9 -,, -, -, -, -,, -, -, -, -,, -, -,8 Dec -,8 -, Current account balance (EUR mn) Dec - Services balance, net (EUR mn) Dec 9 Primary Income Balance, net (EUR mn) Dec - Merchandise exports-- non-oil ( cum.), 7,,,9,9 -, -,,,, 8, 9, 8,7 9, 9, Dec 9, Merchandise imports-- non-oil ( cum.), -, -7, -7,8-7,8 -, -,8,8,, 7,,, 8, 8, Dec 8, Gross tourism revenue (), 9,,7 -,,,8 -,7-7,9 7, -,8 -,9,,,, Dec,8 International tourist arrivals (),,, -, 7, -, -,,,9, -,8 9,,,9 9,7 Dec -, Employment Unemployment rate,7,,8,,,,,,,,,,9 Nov,9 9,8 Employment growth (),9,,,8,,,,,,,,, Nov,,8 Prices ( period average) Headline inflation -, -, -,8 -, -,7 -,9 -,9 -, -, -,8,,,,8, Jan -,, Core inflation -,7 -,9 -,, -,,, -, -,7 -, -,,,,, Jan,,9 Producer prices excl.energy -,,, -,, -, -,8 -,9 -, -,7,,, Nov, Fiscal policy Gov. balance as % of GDP (Programme definition, according to Budget 8 ) -,, -,8, Government debt as % of GDP (Programme definition, according to EU Commission, Compliance Report, January 8 ) 7,8 8,8 8, 79,9 Revenues--Ordinary budget (cum. % change) -,8 -,7 -,7 -,8 -,8,,9 9,7 7, 7,, -,, -, -, Jan, Expenditure--Ordinary budget (cum. % change) -, -,7 -,,, -,,7,,7,7 -,8 -, -,7 -,9 -,9 Jan -, Deposits of domestic private sector -, -, -, -, -, -,,,,,,,,,7,7 Jan,9 Loans to private sector (incl. sec. & bond loans) -, -,7 -, -, -, -, -, -, -, -, -, -, -,8 -,8 -,8 Jan -,8 Mortgage loans (including securitized loans) -, -, -, -, -, -, -, -, -, -, -, -, -,9 -, -, Jan -, Consumer credit (including securitized loans) -, -, -,8 -, -, -,7 -, -,7 -,8 -,8 -,7 -,7 -, -, -, Jan -, -year government bond yield,,,8 7,9, 9, 8, 8, 7, 8, 7,,,,, Feb, Spread between year and bunds (bps) Feb USD/euro,,,,,,,,,8,,7,,8,8, Feb, Sources: BoG, NSSG, MoF, ASE, Bloomberg and NBG estimates unless otherwise indicated Monetary sector (, end of period) Interest rates (period average) Exchange rates (period average) GREECE NBG Macro Flash March 8 p.

14 GREECE Macro View March 8 NATIONAL BANK OF GREECE Editor: P. Mylonas, Deputy CEO, Head of Research, pmylonas@nbg.gr Tel: (+), FAX: (+) 7. Main contributors to this issue (in alphabetical order): E. Alevizopoulou, E. Balikou, A. Gouveli, N. Magginas, G. Murphy, P. Nikolitsa. This analysis is provided solely for the information of professional investors who are expected to make their own investment decisions without undue reliance on its contents. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. Any data provided in this bulletin has been obtained from sources believed to be reliable. Because of the possibility of error on the part of such sources, National Bank of Greece does not guarantee the accuracy, timeliness or usefulness of any information. The National Bank of Greece and its affiliate companies accept no liability for any direct or consequential loss arising from any use of this report. Note: The analysis is based on data up to March, 8, unless otherwise indicated GREECE NBG Macro Flash March 8 p.