At long last, after six years of recession, there are some positive signs in the Greek economy. They have to be put into context however: in 2013 economic activity levels continued to shrink, but the good news was that they did so at a slower rate than in previous years. And in the second half of 2013 there were signs of improving sentiment. The economic sentiment indicator published by the European Commission, which remained at record lows in 2012, began what looked like a sustained process of improvement in 2013. BMI believes this has been an early portent of a change in the real economy in 2014, which will be helped along by improving eurozone demand. Therefore we are forecasting a return to positive GDP growth in 2014, with a modest +1.1% expansion rate (down from the forecast of +1.7% in our last quarterly report). We believe GDP will accelerate to +1.8% in 2015. The most important feature of our forecast is the simple fact that the economy will grow for the first time in years: but as can be seen, we expect the recovery to be fragile. Given the very high levels of unemployment in the country, the improvement in household consumption will be limited. Without a recovery in foreign demand for Greek exports, or an inflow of European foreign direct investment, the sustainability of the domestic economic recovery is not guaranteed.

Greece's outward-looking shipping sector continues to be partly protected from the full force of the domestic crash. Trade and European transit freight demand play an important part in determining overall activity levels, as does investment in port facilities. Because of this the Port of Piraeus has been able to show year-on-year (y-o-y) gains in both tonnage and container traffic since 2011, despite falling Greek GDP. The Port of Thessaloniki, which has lacked the benefits of large new investment, has followed a rather more volatile path with some quite sharp contractions in volume in 2011 and 2013.

Headline Industry Data

    2014 port of Piraeus tonnage throughput forecast to grow 7.8% to 16.685mn tonnes; over the medium term we project average annual growth of 5.7%.
    2014 port of Piraeus container throughput forecast to grow 13.0% to 3.125mn twenty-foot equivalent units (TEUs); over the medium term we project annual average growth of 11.9%.
    Port of Thessaloniki tonnage to grow 1.8% to 12.399mn tonnes in 2014, and average 2.1% on the medium term
    Port of Thessaloniki box traffic to gain 1.7% in 2014 to 326,455 TEUs, and to average 2.0% annual growth in the period running up to 2018.
    2014 total trade growth forecast at 2.9% in real terms, up from 2.6% in 2013.

Key Industry Trends

Government Looking For Further Chinese Investment In Piraeus: Hong Kong shipping services provider Cosco Pacific is reportedly in advanced negotiations with the Greek authorities to build a fourth pier at the port, representing an investment worth around US$297mn. Current annual capacity is 2.6 million TEUs. The fourth pier would boost annual container capacity to 6.2mn TEUs, creating 400 new jobs, according to media reports. Meanwhile, the Greek government was said to be considering the possibility of selling a majority stake in the Port of Piraeus Authority (PPA), as a way of attracting new foreign investment into the sector. This approach is reportedly not favoured by PPA chief executive George Anomeritis, who prefers the granting of further concessions. The state holds a 74% stake in the PPA. A number of ports, including the country's second port, Thessaloniki, are included in the stalled privatisation programme that forms part of Greece's agreement with its international creditors. Greek officials are hopeful the expansion of the Cosco Pacific operation in Piraeus may lead to further investments, including developing of a major logistics centre inland and perhaps a manufacturing park as the cash-strapped country cements its role as a major European distribution gateway for China.

Eletson Sees Margin In LPG: Greek shipping firm Eletson Holdings has created Eletson Gas with the help of US private equity firm Blackstone. The joint venture has been formed with US$700mn in funds, and will transport liquefied petroleum gas. Eletson Gas has placed order for eight new vessels, to be built at a ship yard in South Korea and may acquire an additional two ships from Chinese shipbuilding firm Sinopacific.

... While Costamare Also Goes The Joint Venture Route: Greek shipping fleet operator Costamare has formed a joint venture with US-based investor York Capital Management. The company is using the joint venture to finance the acquisition of five container vessels. The vessels will cost a combined US$190mn, with the purchase coming as part of the joint venture's effort to invest around US$500mn across a two-year period. The purchase will be partly financed by taking on debt.

Risks To Outlook

Upside and downside risks to our forecasts for the Greek economy - and the likely knock-on effects for the ports and shipping sector - remain fairly evenly poised. To take the upside first, the Greek economy has taken such punishment in recent years that a small positive stimulus can have a greater than usual 'multiplier' effect. The economy has already shrunk by nearly 20% since 2007, and unemployment is edging up towards 30%. This means that the whole economy is operating from a much lower base, and can respond in a proportionately greater way to a small improvement, for example in export demand.

That said, despite the magnitude and length of Greece's economic depression, the risk of relapse is significant. The toxic combination of fiscal austerity and high unemployment could again spill over into rolling strikes and demonstrations which further cripple economic activity. The possibility of a further debt restructuring, could similarly deliver another severe blow to foreign investment. Indeed, although the consensus is likely to shift in the direction of additional write downs, the actual terms of such restructuring (if it occurs) could be damaging for investor sentiment. The messy Cypriot bailout negotiated earlier in 2013 in which bank deposits were targeted, certainly provides a clear portent of the change in bailout policies which could leave investors at risk in future programs. Finally, the recovery in the broader eurozone, which will help to lift the Greek economy, has yet to be firmly established and could yet lose momentum. A relapse in the eurozone economy would spell trouble for both Greek exports and investment.

Key Industry Trends

Government May Accelerate Port Privatisation Plans: The Greek government is considering a proposal to fast-track the sale of the country's two major ports. Piraeus and Thessaloniki are both up for sale, along with the state railway network, as the government works to plug a hole in its privatisation budget. The sale of the government's interest in the ports was expected to begin in 2014, but the privatisation agency is reportedly considering whether to bring the sale forward to 2013. A firm decision on the sale's timeframe was expected in a matter of months.

Excel Maritime Bankruptcy Sounds A Gloomy Note: The Greek shipping community is mulling over the future of the country's shipping industry following the collapse of Greece-based Excel Maritime Carriers, according to media reports. The company sought Chapter XI bankruptcy to keep the bulk ship firm afloat. A fleet write-down of nearly US$1.5bn was taken by Excel in relation to the Chapter XI filing, according to Erik Nikolai Stavseth, an analyst at Arctic Securities. Meanwhile, six Greek companies have been reported to be either selling or scrapping their last ships, reported Newsfront Greek Shipping Intelligence.

Diana Borrowing Chinese Money: Greece-based dry bulk operator Diana Shipping has entered into a term loan facility for as much as US$30mn with the Export-Import Bank of China holding a majority interest and DNB Bank ASA as agent. The loan agreement has been signed by the company through two separate wholly owned subsidiaries. The company will use the proceeds to partly finance the purchase of two newbuilding Ice Class Panamax dry bulk carriers of nearly 76,000 deadweight tonnage (dwt) each. The two vessels are scheduled to be delivered during Q413 and Q114 respectively. Meanwhile, Diana Shipping has also signed a memorandum of agreement to buy, the m/v Shoyo, from an unaffiliated third party. The 2006 built Panamax dry bulk carrier with 76,942DWT is valued at US$20.3mn. The vessel, to be renamed to Artemis, was scheduled to be handed over to the buyer in September 2013.

Risks To Outlook

The Greek economy has taken so much punishment in recent years that we now believe the balance of risks, on the short term at least, is on the upside. The economy has already shrunk by nearly 20% since 2007, and unemployment is edging up towards 30%. This means that the whole economy is operating from a much lower base, and can respond in a proportionately greater way to a small stimulus. A slightly faster recovery in demand than we currently anticipate, particularly should household expenditure experience a turnaround, would force an upward revision to our forecasts. Also potentially positive is an upturn in investment by core eurozone economies (such as Germany) in the peripheral member states. In this context Greece could become increasingly attractive as a result of the large stock of unemployed labour and gradual improvement in relative wage costs.

That said, the prospect of renewed eurozone or Greek financial turbulence, while receding, remains an important downside risk. The uncertainty surrounding Greece's membership to the eurozone has still not been cleared up. Until this has been resolved, periodic speculation about Greece potentially leaving the bloc could cripple investor and consumer spending, as well as drive down asset prices. We still believe the case for Greece leaving the eurozone is not clear cut, particularly given that, following five years of depression, Athens has managed to hold on to its membership. In addition, we believe the other member states would be unwilling to allow Greece to slip into political and economic isolation given its crucial location in a part of the world that has had a very turbulent history. Should Greece eventually find itself abruptly leaving the single currency area, the loss of financial support from the ECB and the exodus of capital to perceived safe havens would precipitate a financial and economic collapse that would negate our medium- and long-term growth forecasts.
Source: Fast Market Research