Greece's Economic Crossroads: Betting on Domestic Resilience Amid External Headwinds

The Greek economy has reached a pivotal moment. While Q1 2025 GDP stagnated at 0.04% quarterly growth, annual growth held steady at 2.2%, a slowdown from the previous quarter but far from a collapse. Beneath the surface, a stark divide emerges: domestic demand—led by a 1.3% rebound in household consumption—is proving resilient, even as exports and fixed investments crater. For investors, this bifurcation offers a clear playbook: embrace consumer-facing sectors while steering clear of industries tied to external demand or capital spending declines.

The Consumption Lifeline

The 1.3% quarterly surge in household consumption (Q4 2024 to Q1 2025) is the economy's brightest spot. After years of austerity and pandemic-induced frugality, Greeks are finally tapping into pent-up demand. Non-durable goods (food, clothing) and services (travel, hospitality) are likely driving this rebound. Annualized, consumption grew 1.6% year-on-year, a modest but steady climb.

This resilience suggests consumer discretionary stocks—local retailers, food producers, and tourism-related firms—could outperform. Consider plays like:
- Hellenic Telecom (OTE: Athens Stock Exchange), which benefits from rising disposable income and digital adoption.
- Hellinika Group, a travel agency with exposure to domestic tourism.

The Structural Weaknesses to Avoid

While domestic demand holds up, two pillars of growth are crumbling:
1. Exports fell 0.9% quarterly, dragged down by a 2% decline in services exports (tourism, shipping) and 0.8% drop in goods (agricultural products, industrial goods). With imports rising 0.7%, net external demand is a major drag.
2. Fixed investment collapsed 6.1% quarterly, reversing Q4's growth. This signals weak business confidence and a lack of capital spending—likely tied to high public debt (153.6% of GDP) and fiscal austerity.

Investors should avoid sectors tied to external trade or infrastructure. Shipbuilders, exporters of agricultural commodities, and construction firms linked to private capital projects face headwinds. The government's 1.1% quarterly cut in spending further dampens public-sector-driven projects.

Infrastructure: A Risky Gamble

While fixed investment is contracting now, longer-term opportunities exist in infrastructure—if the EU's post-pandemic recovery funds materialize. Greece has secured €35 billion in EU grants and loans for projects like ports, renewable energy, and digital upgrades. However, execution risks remain.

Investors might consider selective exposure to state-backed projects, such as Public Power Corporation (PPC), which is upgrading energy grids. But patience is key: delays in fund disbursement or political uncertainty could prolong underperformance.

The Bottom Line: Play Domestic Resilience, Avoid External Betas

Greece's economy is transitioning. While annual GDP growth remains positive, quarterly stagnation highlights its vulnerability to global trade cycles and weak investment. For investors, the strategy is clear:
- Overweight consumer discretionary plays benefiting from domestic demand recovery.
- Underweight export-reliant industries and sectors tied to fixed investment declines.
- Monitor infrastructure cautiously, waiting for clearer signals of EU fund deployment before committing capital.

The Greek consumer is the economy's unsung hero—back that story, and avoid the pitfalls of structural stagnation elsewhere.

DISCLAIMER: This analysis is for informational purposes only and does not constitute investment advice. Always conduct thorough research or consult a financial advisor.