By Denise Roland 3:19PM BST 30 May 2013
Economic morale in Greece surged close to a five-year high in May despite mounting signs that the nation is set to enter a seventh year of recession.
The Greek economy entered deflationary territory earlier this year, which, if sustained could drive up Athens' debt burden and force the government to further restructure its debt, forcing losses on lenders. Photo: AP Photo/Thanassis Stavrakis
The debt-gripped nation registered a 93.8 reading on the European Commission's economic sentiment index, putting it above northern European peers Austria, Finland and Denmark, and well above the eurozone average of 89.4.
Greece was among the steepest risers in the survey, which gauges consumer and business confidence, suggesting that pessimism is waning fast as the population pegs hopes on recovery.
But economists warned that the upward trend in Greek sentiment could be fragile amid growing signs the economy is still far from shaking off recession.
"It seems pretty encouraging, but I would treat these figures with a degree of caution," said Ben May, Europe economist at Capital Economics.
"Despite a pick-up in sentiment which began last year when the bail-out was resurrected, first quarter GDP has not registered an improvement."
Economic sentiment in Greece, Spain, France and Italy. Data: Reuters/European Commission
He suggested that Greeks could be anticipating an easing in credit conditions as banks get recapitalised, or that lower borrowing costs on the government could be lifting sentiment.
Earlier this month the European Central Bank cut its key interest rate to a record low of 0.5pc in a bid to boost lending in the eurozone. However, Greek banks have largely failed to pass on the benefits of rate cuts to their customers.
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The OECD yesterday forecast that Greece will enter its seventh year of recession in 2014, meaning it could need further bail-out assistance. This runs counter the government's own claims that "the worst is over" and eurozone forecasts which see the country returning to growth next year and exiting its bail-out.
Greece has the highest youth unemployment on the continent at 64pc, and overall joblessness stands at 27pc.
The Greek economy entered deflationary territory earlier this year, which, if sustained could drive up Athens' debt burden and force the government to further restructure its debt, forcing losses on lenders.
Nonetheless, the pick up in Greek confidence was reflected across its crisis-ridden counterparts. Morale in bailed-out Portugal rose 1.8 to 84.2 and in Italy gained 1.5 to 84.9, though Spain inched up just 0.1 to 89.8.
"For the crisis countries, (this data offers) yet more signs that the worst is over. Southern Europe saw some of the strongest improvements," Christian Schulz, senior economist at Berenberg Bank, wrote in a note.
Sentiment rose in all five of the largest eurozone countries - Germany, France, Italy, Spain and the Netherlands - while the 17-nation eurozone registered an overall pick-up of 0.8 points to 89.4, after falling in April.