Incoming data suggests that sluggish growth continued in the third quarter, after Q2’s deceleration. Industrial production growth waned in August and the manufacturing PMI edged down in September pointing to lackluster manufacturing activity. However, a booming tourism sector is expected to have buttressed momentum over the summer. Against a backdrop of languishing growth, the government unveiled its first post-bailout budget on 1 October. Authorities penned in a large primary surplus—greater than the amount agreed with its lenders—to shield them from having to cut pensions again. Although another round of unpopular pension cuts had been agreed upon, policymakers want to avoid the slash ahead of elections next year and stated that the European Commission has approved the budget. The government remains under close monitoring by its European lenders after the end of the third bailout. Meanwhile, the Finance Ministry and Central Bank announced they will begin lifting capital controls in the coming months as the economy slowly normalizes following the crisis. An improving labor market and a pick-up in investment thanks to reduced uncertainty should drive the recovery into next year. That said, the economy’s long-term outlook is murky as doubts remain over the sustainability of the country’s debt load and the government’s willingness to continue running large primary surpluses for years to come. FocusEconomics panelists see GDP expanding 1.9% in 2019, which is down 0.1 percentage points from last month’s projection, and 1.9% again in 2020.
The IHS Markit manufacturing Purchasing Managers’ Index (PMI) edged down to 53.6 points in September from August’s 53.9 points, but remained above the critical 50-point threshold that separates expansion from contraction in business conditions in the manufacturing sector, where it has been for 16 months. September’s expansion was driven by growth in new orders and output. Both foreign and domestic client demand increased, buoying new business growth to a 13th consecutive monthly expansion. Meanwhile, input price inflation continued to decelerate from June’s recent peak, although still remained high due to increased prices on metal and wood products.