One of the features of the Euro area crisis has been the way that the impact of austerity on the Greek economy has been to see it shrink substantially. This was certainly not part of the original bailout plan as the forecast for 2012 was for economic growth of 1.2% rather than a shrinkage of around 6%. However in a now sadly familiar cycle, austerity has begat economic weakness which has begat the need for more austerity and repeat. This means that an economic contraction of the most severe type has hit Greece as following the credit crunch her economy shrank by 0.2% in 2008 and 3.1% in 2009 and then following her “rescue” her economy shrunk by 4.9% in 2010,7.1% in 2011 and will shrink by around 6% in 2012.
As we stand the musical theme for the “rescue” would be this by the Verve.
Now the drugs don’t work
They just make you worse
Hope from industrial production?
However in the middle of this month the Greek statistics office released these numbers.
The Production Index in Industry (IPI) in August 2012 compared with August 2011 recorded an increase of 2.5%. In August 2011, the annual rate of change of the IPI was –10.9%.
As you can see there was a positive year on year change. Was it a sign of hope? And is it hope that can be sustained? We can say that it improved the performance of the year so far.
In the 8-month period from January 2012 to August 2012, the average rate of change of the IPI was –4.1%.
And whilst we are looking at the hopeful side manufacturing production was up by 2% compared to August 2011 as well.
If we drill down further into the detail we see a sign of the destruction that has been inflicted on Greek industrial and manufacturing production as the underlying indices are at 76.7 and 69.7 respectively where 2005 is the base of 100. Also we know that August is the peak of the summer lull and we have to wonder if the fall this year being slightly less than last from July to August (-10.9% as opposed to -17.4%) might be related to where we are now.
The latest data: Industrial Turnover Index
Friday’s official data on this front also offered a glimmer of hope.
The Turnover Index in Industry (both domestic and non-domestic market) in August 2012 compared with August 2011 recorded an increase of 3.0%.
So an improvement here too and from the numbers below there is perhaps some hope of export-led growth being enough to offset the continuing contraction in domestic demand.
The Turnover Index in Industry for the domestic market decreased by 5.0%.
The Turnover Index in Industry for the non-domestic market increased by 18.7%.
And interestingly it was due to exports outside the Euro area which if you think about it is rather a central challenge to the concept of the Euro (which was supposed to aid trade with a single currency and a free trade area).
The Turnover Index in Industry for the Eurozone countries decreased by 2.4%.
The Turnover Index in Industry for the non-Eurozone countries increased by 28.3%.
And if we look at the turnover index for the non-domestic market we see that where 2005=100 that it is now at 178.9 and that outside the Euro the index is at 208.9. Much more of that and there will be even more questions about why Greece is still in the Euro. Such numbers also pose a challenge to the stereotypes which have circulated about Greek industry as it seems that she can produce goods which are in demand abroad.
Industrial New Orders
Unfortunately the latest numbers here do not back up the optimism above.
The New Orders Index in Industry (both domestic and non-domestic market) in August 2012 compared with August 2011 recorded a decline of 8.8%. In August 2011, the annual rate of change of the New Orders Index in Industry was –1.4%. The average New Orders Index in Industry for the 12-month period from September 2011 to August 2012, compared with the 12-month period from September 2010 to August 2011, decreased by 8.9%.
We see here figures for new orders which remain grim and hint that the numbers above for industrial production may be of the one swallow does not make a summer variety. Also we see that the economic slow down outside Greece’s borders may be beginning to act as a brake on her export performance.
The New Orders Index in Industry for the non-domestic market decreased by 7.5%.
The underlying new orders index is now at 64.6 where 2005=100, and here is a number that until recent times would have been regarded as unthinkable for a western country, domestic new orders are at 44.7 and are still falling at an annual rate of 10.7%.
Greece’s employment and unemployment situation
Unemployment rate in July 2012 was 25.1% compared to 17.8% in July 2011 and 24.8% in June 2012.The number of employed amounted to 3,763,142 persons.The number of unemployed amounted to 1,261,604 while the number of inactive to 3,356,276.
So we see here an apparently ever deteriorating situation and one where the unemployed and inactive (in economic terms) now exceed the employed by a considerable margin which cannot be stable or healthy. But if we stop and consider that in these times changes in employment are the significant measure is we wish to look at economic prospects and if we do that we see this.
The number of employed decreased by 329,086 persons compared with July 2011 (a 8.0% rate of decrease) and increased by 5,364 persons compared with June 2012 (a 0.1% rate of increase).
So maybe a small flicker of hope in what has been a very grim trend.
If we consider the evidence from the purchasing managers survey for September we see that Greek manufacturing saw further declines in September.
Greece’s manufacturing sector continued to contract during September, as firms scaled back
production in line with a further notable drop in intakes of new work. Employment and purchasing
activity were adjusted downwards and stocks further depleted.
So it does not look as if a some more hopeful data in the summer survived into the autumn.
Yet more austerity seems to be on its way
For week after week we have been told that Greece has found a further 11.5 billion Euros of cuts to bring its fiscal deficit and debt numbers under more control. As is sadly often the way we have seen that such delay means that an extra 2 billion Euros has been added to the target and so if anything agreement may have even lost ground.
Also this morning we have seen an update from her statistical office on Greece’s finances up to the end of 2011 and we have seen one more example of what feels like an interminable sequence as her 2011 fiscal deficit finds itself revised higher from 9.1% of her economic output (Gross Domestic Product) to 9.4%. Her national debt at the end of 2011 found itself raised too from 165.9% of GDP to 170.6%.
Ordinarily an economic decline carries with it some of the seeds of the following recovery. For example falling interest rates help many sectors to regroup and rebuild. Unfortunately the credit crunch has blocked off some of that route as whilst the price of borrowing may fall the supply often remains constrained. This must be particularly true in Greece if we see the value destruction that has taken place in her banking sector. One might expect foreign banks to be looking for value at this stage of the cycle. but in fact they (Credit Agricole and Societe Generale) are fleeing.
This economic decline has also been different in that as it has progressed it has seen further turns of the austerity wheel. We look likely to see one more turn of an additional 13.5 billion Euros for 2013/14 which is about 7% of her likely economic output for 2012. Accordingly any ripples of economic hope are likely to be snuffed out by a further tidal wave of austerity.
As we signs of economic slow downs elsewhere it will be increasingly difficult for Greece to maintain her export performance improvement. So unfortunately the swallows of summer 2012 are likely to be long forgotten as Greece faces a long economic winter before this of over. There is a lot of debate over what an economic depression represents which I think that Greece’s experience will end and I regret having to type that.