Vaccination and COVID-19 greatly shaping tourism and 2021 rebound
As expected, the economic drop lost some momentum in 4Q20, as it moderated to 7% y/y, wrapping up FY20 GDP at -8.4%. On the positive side, investments growth returned to the positive region, as did goods exports. Private consumption remained in the red, but negative pressures eased, while services exports were still facing a strong headwind from the tourism sector. Looking ahead, we stick with our 4.5% call, quoting elevated risks on both sides of the figure, mainly reflecting the uncertainty related to the pandemic/vaccination trajectory and consequently tourism rebound potential and external demand recovery. Domestic demand, namely EU funds-backed investments and private consumption normalization, should remain positive.
2021 should bring some inflation acceleration, but we see the average remaining in the comfortable region of slightly in excess of 1%. The monetary policy stance is seen as remaining unaltered, i.e. accommodative. The fiscal outlook remains dependent upon recovery dynamics and we still see some modest upside risks, albeit the consolidation effort from 2020 should allow for the public debt trajectory to reverse. Yields should remain driven by global factors, namely the reflation story that shaped YTD performance. The political arena turns to the local election in May, but the key items remain euro adoption and reaping the benefits of the generous NGEU allocation.