Greece revs up in slow lane
There’s been plenty of bad news for heavily indebted Greece in the past three years – the banking crisis in neighbouring Cyprus being the latest of the country’s woes – but not all the news is gloomy.
MSCI’s Greece index was one of the developed world’s best performers this year, according to the index compiler’s quarterly survey, giving returns of 14.02 percent.
Morgan Stanley is one bank to have grown more enthusiastic about the troubled euro zone peripheral economy.
In a note out today, its analysts say:
We are more constructive on Greece than consensus expectations. A recovery hasn’t started yet, but soft data are becoming less bad, as the shocks that hit the Greek economy – including euro exit worries – are starting to dissipate, and bank deposit flows now look fully stabilised.
Morgan Stanley says Greece is likely to show some moderate growth in early 2014, after shrinking 4 percent this year. The country has also beaten its fiscal targets in the first couple of months of 2013, and is likely to maintain a budget surplus, the bank says. Price competitiveness has improved due to large wage cuts and labour market reforms, it adds:
By the end of this year, the competitiveness loss experienced since 2001 – when Greece joined the euro zone – will have been recouped entirely, judging by current trends. And from that point onwards, competitiveness levels are likely to improve further.
Greece has held onto its place in the euro zone but that didn’t stop Russell Indexes from downgrading the country’s stock market to emerging market status last month, citing rising risks and falling liquidity, and MSCI could follow suit. Yet this may attract more risk-hungry emerging market investors.
Frontier markets broker Exotix has extended its reach to Greece and Cyprus, and was also relatively sanguine today.
Exotix economist Gabriel Sterne said in a note that the Cyprus bail-out with its hit for bank depositors will have a negative long-term impact on risk aversion towards countries like Greece, but the impact will be “not a marked one”.