Greece Exits Recession With Surprise GDP Growth

Greece caught investors off guard as it revealed that its economy has grown in the second quarter, thereby marking the end of a short-lived recession.

The Hellenic Statistical Authority said that Gross Domestic Product (GDP), a measure of a country's economic output, surprisingly increased by 0.8% in the three months to June.

City analysts had expected a contraction of around 0.5%.

Furthermore, the 0.2% decline which was originally recorded for the first three months of the year has been revised upwards to 0%.

A breakdown of the figures is yet to be provided, but monthly retail sales figures suggest stronger household spending maybe behind the surprise bounce in GDP growth and this theory is supported by Dixons Carphone which recently reported strong sales growth in Greece .

Although Greece will welcome the news, sceptics will argue that these figures relate to a period before the introduction of capital controls.

Capital controls which were imposed on 28 June prevented Greek citizens from withdrawing any more than the daily limit of €60.

These capital controls have hampered business activity and it is expected that they will have constrained economic growth in the third quarter.

Jonathan Loynes at Capital Economics was quick to pour cold water on the numbers saying "[the figures] relate to an entirely different economy than the one currently being strangled by capital controls".

He added: "the key point, of course, is that the numbers relate almost entirely to the period before the imposition of capital controls at the end of June. Survey indicators such as the EC’s [European Commission] measure of economic sentiment suggest that activity has since collapsed dramatically".

The Athens Stock Exchange which was closed for five weeks following the introduction of capital controls, reopened earlier this month falling 23% - with the country's four main banks being hit particularly hard.

Shares in the Athex Index which tracks the fortunes of country's 30 biggest listed companies was 0.34% higher following the GDP announcement this morning.

Eurozone finance ministers are meeting tomorrow to ratify terms associated with a third €85bn bailout which would appease immediate concerns by allowing Greece to make its next debt repayment to the European Central Bank which is due next week.