Writer: Stephanos A.

Peppas

On May 2016

The Eurozone is still facing a number of challenges and performing below potential. High
debt levels and fragile banking sector continue to face opposing winds towards the recovery
in many economies of our Continent.

One of the main issues in 2016 will be the British referendum on EU membership. London's
proposals for EU reform; will produce different alliances over different issues. Some
countries, including the Netherlands and Poland, will support the demands to give national
parliaments veto power over EU legislation. Other countries, mostly in Northern Europe, will
support the demands to restrict access to welfare for immigrants, but countries in Central
and Eastern Europe will resist them. Countries in Central and Eastern Europe (specifically
Poland, Hungary and Romania) will defend policies to protect non-Eurozone countries from
Eurozone decisions.

European economic forecast 2016

In Italy, the government and the financial sector took a step in the right direction to address
banking concerns in April and created Atlante, a private investment fund to backstop
troubled banks’ capital increases and buy non-performing loans.

In Greece, the first bailout review remains delayed—stalling debt relief negotiations and the
release of the much needed funds—as the country continues to battle with its creditors. The
government has had to resort to unconventional methods in order to cover its bills and is
facing an over EUR 2 billion bond payment in July that it will be unable to meet without fresh
funds. On top of this, economic data for 2016 remains awful: the unemployment rate rose in
January and industrial production hit an eight-month low in February.

Greece’s Economy Data

2011 2012 2013 2014 2015

Population (million) 11.1 11.1 11.1 11.0 11.0

GDP per capita (EUR) 18,613 17,190 16,306 16,152 16,028

GDP (EUR bn) 207 191 180 178 176

Economic Growth (GDP, annual variation in %) -9.1 -7.3 -3.2 0.7 -0.2

Domestic Demand (annual variation in %) -10.9 -9.8 -4.1 -0.6 0.3

Consumption (annual variation in %) -9.8 -8.0 -2.4 0.5 0.3

Investment (annual variation in %) -20.5 -23.5 -9.4 -2.8 0.7

Exports (G&S, annual variation in %) 0.0 1.2 2.2 7.5 -3.8

Imports (G&S, annual variation in %) -9.4 -9.1 -1.9 7.7 -6.9

Industrial Production (annual variation in %) -5.7 -2.0 -3.2 -1.9 0.7

Retail Sales (annual variation in %) -10.2 -12.2 -8.1 -0.4 -1.5

Unemployment Rate 17.9 24.6 27.5 26.6 25.0

Fiscal Balance (% of GDP) -10.2 -8.8 -13.0 -3.6 -7.2

Public Debt (% of GDP) 172 160 178 180 177

Inflation Rate (HICP, annual variation in %, eop) 2.2 0.3 -1.8 -2.5 0.4
 2011 2012 2013 2014 2015

Inflation Rate (HICP, annual variation in %) 3.1 1.0 -0.9 -1.4 -1.1

Inflation (PPI, annual variation in %) 7.7 4.8 -0.9 -1.2 -7.2

Policy Interest Rate (%) 1.00 0.75 0.25 0.05 0.05

Stock Market (annual variation in %) -51.9 33.4 28.1 -28.9 -23.6

Exchange Rate (vs USD) 1.30 1.32 1.38 1.21 1.09

Exchange Rate (vs USD, aop) 1.39 1.29 1.33 1.33 1.11

Current Account (% of GDP) -10.0 -3.8 -2.0 -2.1 -0.1

Current Account Balance (EUR bn) -20.7 -7.3 -3.7 -3.8 -0.1

Trade Balance (EUR billion) -24.3 -19.8 -15.2 -17.0 -14.2

Despite the improvements registered over the past year, Greece’s unemployment rate is still
well above the Eurozone average. Focus Economics Forecast expect unemployment to
average 24.8% in 2016. For 2017, the panel expects the unemployment rate to average
24.4%.

Greece’s Industrial Production

Industrial Production in Greece decreased 4 percent in March of 2016 over the same month
in the previous year. Industrial Production in Greece averaged -1.35 percent from 2000 until
2016. This significant drop is much worse than what economists had predicted, according to
the Financial Times. It was estimated that industrial production in Greece would drop by
1.5% but that number more than doubled and presented a significant setback, since Greek
industrial production showed signs of growth (2.3%) in November 2014.

High Risk, High Reward Strategy

Meanwhile, investors are already hesitating to bring their money to Greece.
The MSCI Greece index (Market Classification) looked great on October 2007, that index hit
a high point of 1,040. On May 2015, the index had sunk to a near all-time low of just 53.68;
that’s just 5.1% of its highest value.

In 2013 MSCI dropped Greece from a developed country back to an emerging market. For
investors, the reclassification mean better potential returns, but also significantly more risk.
The index may drop the Greek economy even further from emerging market to standalone.
Essentially, Greece would be ousted from the MSCI. The Greek economy is depressed.

And since the index is at a mere 5% of its all-time high, there's a lot of room to grow.
However, one of the bigger issues is that the euro is holding a lot of countries back (not just
Greece).

So, what an investor usually do? The Time to Buy Is When Prices Are Depressed!

Sources

I. EU Economic and Financial Affairs (ec.europa.eu)

II. Hellenic Statistical Authority (EL.STAT) and Focus Economics calculations
III. greekreporter.com/ drop-in-greek-industrial-production
IV. Investopedia
V. Stratfor forecast Europe