Are there signs of a turn in the Greek economy?

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.

Looking forwards

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.


10 thoughts on “Are there signs of a turn in the Greek economy?

  1. Hi Shaun
    Industrial output represents just about 15% of the economy, manufacturing about 11% of GDP. Apparently pharma exports were the main reason for the August numbers, what and to whom I do not know.
    However Italy also experienced an August increase ( along with Spain). A bit of a ‘med’ effect it seems. The Italians are not getting excited saying that ‘seasonal adjustments’ are notoriously difficult during August and expect it to reverse in September. I would imagine the same is true of Greece, Spain and Portugal.
    Have you read the IMF ‘working paper’ below that is getting MMT guys excited as it postulates the ( positive) effects of stopping commercial banks creating ‘money’?

    • Hi JW

      I agree that this summer may be misleading however if I report bad numbers I should also report good. It was also true that a factor in the numbers was an increase in electricity production which I imagine was caused by air-con etc. because of the heatwave. So Greek weather can apparently help output as opposed to UK weather which invariably takes the blame!

      Thanks for the link, I will take a look at it.

  2. hello Shaun

    indeed as I’ve stated before, there’s going to be no recovery. Atleast in the sense we’ve been lead to believe, ie 5% .

    hasn’t anyone noticed that the oil prices haven’t dropped much ? its still $110 as I write , in a middle of a global recession ?

    ah its not global is it , well if the USA is the engine then its still way too high!

    Along with all the other minerals and metals we need for a modern industrial society

    So whilst the Greeks can get some benifit from exports I dont think their export market will hols up for too long – then what

    As you say more cuts are planned !

    Brings to mind they’re circling the drain at the mo…..


    • Hi Forbin

      I agree that the oil price poses more than a few questions. For a start the “gap” is back between the Brent crude benchmark and the West Texas one. Not so long ago it was a few dollars and now it is just over US $20. So for the US it is much cheaper than here…

      Oh what a tangled web and all that!

      After all is the price of oil 90 dollars or 110?

      • Seems odd that West Texas is cheaper, I’d have thought it shorter (and therefore cheaper) to transport oil from Russia & Saudi Arabia to NW Europe.

        Is the oil price differential affected by a lack of Iranian oil ?

  3. One explanation for the export led pick up in the summer months could be that the Euro was at it’s weakest then. I dabble in exports from Greece and was able to shift stock at this time as the drop in the Euro just ( and I emphasise just!) made it profitable to do so. Since then the Euro has strengthened and exports are off the agenda, for me at least. I keep telling anyone who will listen that the peripheral markets need the Euro to devalue substantially to help their economies and hopefully grow out of this mess ( I’m an optimist) but policy is dictated by the needs of Berlin.

  4. I should also add that your observations about the pending cuts are correct and if implemented ( a big if) could push Greece over the edge. I cannot over emphasise how grim things are there. It may well be that political pressure is the undoing of the Euro rather than economic issues although clearly one flows from the other.

    • Hi pavlaki

      It is hard from outside to get a full measure of how grim things are there. But the numbers are bad and look likely to continue on the same grim path. It wont be long before her economic output is below that when she joined the Euro. The situation must be very explosive….

  5. No one can deny that there a structural problems in the Greek economy: a narrow export base and it imports a wide range of consumer goods including food.

    However these problems are not more quickly resolved by impoveriahing the whole country.

    It is quite clear that Greece must leave the Euro. It can then rstore currency sovereignty and all eshew all temptations to adopt currency pegs to major trading partners.

    It should then re-negotiate all its foreign currency debts, and if this is not possible then default on them.

    It can adopt policies to take advantage of the depreciating domestic currency (presumably called the Drachma) by incentivising import-substituting and export-stimulating activities.

    Having currency sovereignty also means that it can use fiscal policy for job creation to stabilise incomes at the bottom end of the income scale.

    It will be a horrendous rise but there is a real hope for success. The current path holds no such hope.

    • I disagree on currency pegging. Currency pegging can be very successful – Bulgaria has pegged to the DMark since 1997. The currency board has hard currency reserves to exchange every Leva (BGN) issued with euro, this stops a run on the currency.

      As discussed in a previous blog – the currency board arrangement is the IMF’s “old game”, with IMF mandated devaluation and restrictions on govt borrowing. I think it works very well here.

      currency pegging can work given discipline and a sensible exchange rate.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.