What if Greece does not return to economic growth this year or in 2015?

Welcome back to those of you like me who have returned here and hello to new readers. Today I intend to analyse a regular subject of the credit crunch era which is the economy of Greece. The scale of the economic destruction that has taken place is of the order that is called a great depression when we refer to the 1920’s and 30’s. This is completely the opposite of what was promised back in April and May 2010 when the bailout programmes for Greece began. Believe it or not the Greek economy was supposed to return to growth in 2012 (1.1%) and then grow at over 2% from 2013 onwards. Even worse the unemployment rate was supposed to rise to 14.8% and then fall on a similar timescale as opposed to surging higher and higher. This was accompanied by those in charge of the policy such as French Finance Minister Christine Lagarde calling it a “shock and awe) move. Yes it has turned out to be but not in the way she or they intended as the shock has been at the stupidity employed.

So let us move forwards and see what signs of what has been called “Grecovery” there are.

National Accounts

The latest economic growth figures showed that whilst Greece has not yet even stabilised its position there is some hope that it will happen soon.

in the 2nd quarter of 2014, the Gross Domestic Product (GDP), in volume terms, decreased by 0.3% in comparison with the 2nd quarter of 2013,

If we look backwards for the scale of the fall we see that economic output in Greece has fallen by 24% since the second quarter of 2008. I also note that the application of the “shock and awe” plan accelerated the fall with the annual rate of decline of the Greek economy peaking at 9.2% in the final quarter of 2010. I argued back then that such a strict programme needed a lower exchange rate to ameliorate things but of course the official view involved Greece remaining in what for it has been the straight-jacket of Euro membership. I will leave it to readers to decide whether the optimistic official forecasts were incompetent or deliberately misleading.

Such a contraction has effects in a multitude of areas including the one below. From Kathimerini

Greece’s population shrank by 17,660 people last year as deaths outpaced births, according to the Hellenic Statistical Authority (ELSTAT).

Those numbers do not include emigration.

Looking forwards

Ordinarily a decline in economic activity on such a scale would involve a strong bounce back in the recovery phase. Economists call this a V-shaped recovery where the economic weakness seedcorns the subsequent recovery. The problem is that not only has this not yet happened but there are worries even now that it will happen.

Last week saw the latest purchasing managers survey for manufacturing released.

September saw slight decreases in both
manufacturing output and new orders, reversing the
gains seen mid-quarter. This renewed weakness
contributed to further job losses in the sector,

As you can see the hopes of an improvement that took place in the summer seem to have been extinguished for now. We are now looking for any signs of growth as opposed to a V-shaped rebound. Also with the elevated level of unemployment (26.6%) Greece does not need further job losses.

There is also an economic sentiment indicator compiled by the European Commission and this showed a similar decline in Greece. After rising to a peak of 104.1 in June it moved lower through the summer and dropped more sharply to 99.3 in September.

If we move wider and look at prospects for the Euro area and hence Greek exports we do not get a lot of cheer either. The weak economic outlook was added to by this morning’s update on the state of play of the retail sector in the major Euro area economies.

Consumer spending in the euro area looks to be
on the downturn, with the latest retail PMI figures
showing sales falling for the third month running.
Furthermore, September’s decrease in sales was
the sharpest for almost a year-and-half as rates of
contraction gathered pace in France and Germany

Another Euro area recession would be exactly what the Greek economy does not need! Remember 2014 was supposed to be the year of recovery for the Euro area.

What about wages?

This is an issue which concerns much of the developed world right now. However Greece has seen moves which have been particularly severe. If we take 2008 as our benchmark of 100 then in the second quarter of this year wages in Greece were at 82.5 (seasonally adjusted). Whilst this may seem bad enough I am afraid that the situation is even worse when we look at what has happened to real wages. This is because whilst Greece now has disinflation it had an inflationary episode mostly driven by the rises in indirect taxes applied to tighten austerity and raise revenue. So since 2008 prices have risen by approximately 8%. If you were wondering why Greek domestic demand has collapsed try buying products which are on average 8% more expensive with wages some 17.5% lower!

The latest numbers show some hope that the declines at least have eased.

The seasonally adjusted Index of wages of the 2nd quarter 2014, recorded a decrease of 1.0%  compared with the corresponding index of the 2nd quarter of 2013,

But as to any rebound we will have to wait and see.

What about the trade balance?

The section above describes what is called an internal competitiveness adjustment of an extreme level. I hope that it is as extreme as I will ever see. The official theory is that such a wage adjustment will make the Greek economy much more competitive and it will thereby be able to increase its output and production. Accordingly one looks to numbers which would demonstrate this of which the most obvious are the trade figures. the current account balance was supposed to move into surplus in 2012 and the see a succession of rising surpluses. One would hope to see a better export performance and some import substitution so let us take a look.

The deficit of the Trade Balance, for the 7-month period from January to July 2014 amounted to 12408,6 million euros (16797,3 million dollars) in comparison with 11146,8 million euros (14475,5 million dollars) for the corresponding period of the year 2013, recording an increase, in euros, of 11,3%.

So trade is not improving in 2014 as far as we can tell and in fact exports of goods have fallen by 4% on 2013. Now this is not the full picture as Greece for example has substantial export receipts from its services sector particularly tourism. On a wider current account measure Greece did have its first surplus in 2013 since 1948. So it would appear that any further balance of payments improvements will have to be driven by tourism and those with Greece’s interests at heart will hope for more of this. From the Bank of Greece.

As regards travel spending by non-residents in Greece, a year-on-year increase of 13.8% was recorded, reflecting a 20.8% rise in non-residents’ arrivals.


Today has seen a new draft budget published for Greece and I note that much of the media is reporting it along the lines that 2015 will be a second year of growth for Greece. I am sure you have spotted that it is not yet certain that 2014 will be one of growth and the outlook is getting more not less cloudy. There has been no shortage of official economic forecasts telling us that Greece will return to economic growth next year! This is invariably accompanied by a forecast that the national debt will reduce as a proportion of economic output. This time the forecast number is 168%.Such forecasts are usually accompanied by the phrase that has become a harbinger of doom “on track” and yes it is back. Indeed if we believe the Deputy Finance Minister it will be a future world of apple pie and ice cream. From the Associated Press.

The country is entering a long period of sustained economic growth rates and primary surpluses that will bring growth in employment, reducing unemployment and improving living standards for all citizens,

Meanwhile the actual picture seems much more problematic to me. Yes some growth seems likely mostly in truth due to the fact that the decline was so large! Indeed the surprise and indeed anti-achievement was to avoid this so far. But with the outlook in the Euro area weakening the bright spots in the Greek economy may struggle to gain much traction. Also what if this is as good as it gets and we see what is called an L-shaped recovery or god forbid a further contraction?


15 thoughts on “What if Greece does not return to economic growth this year or in 2015?

  1. Did some windsurfing this summer in Bulgaria, cost 40 lev per hour with instruction & kit. In September I googled windsurfing Crete and saw the Greeks charge 50 euro per hour.

      • In the summer, there is no difference. But Crete is warmer in October, the BG windsurf school closes mid September.The beach bars charged about 2.50 BGN per beer – don’t know about beer in Greece.

        Luckily I can avoid Sunny Beach (which I strongly dislike, think prevalence of illegal GDP boosting activities) and find some nice quiet family friendly spots. I’d say Greek tourism is competing against much lower cost options.

  2. “The country is entering a long period of sustained economic growth ”

    So where is the proof, the closely reasoned argument based on the numbers (sic). I am developing automatic filters that take me over this sort of stuff when I am reading as it has zero information.

    Not said it before but your commentary stands out amongst all the others that I read. I just wished that a few of your questions could be posed Paxmanlike to politicians and central bankers until they tell the truth or run away in shame. You must keep going!

  3. What is not measured in any official statistics is the change in attitude of the Greeks with regard to their future prospects. I do not know anyone who expects their personal circumstances to improve anytime soon and when they do improve they will put money aside for future liabilities. The Greeks have been mentally scarred by this recession and it will take a long period of sustained growth and improving personal finances to loosen their purse strings. I don’t see things getting a whole lot worse but on the other hand I do not see any improvement either. There is also a hatred of the political classes that have brought this upon them and a wish for change. Like Podemos in Spain, Syriza has risen on the back of this discontent and will likely form the next government. The threat or solution to Greece’s problems is therefore likely to be political rather than economic (ditto Spain with the rise of Podemos and the Catalan question) and this in turn will effect the Eurozone. The Eurozones problems are far from over.

    • Hi Pavlaki

      The situation that you describe seems to be a psychological backdrop to what is called an L-shaped recovery. Things drop but then if there is a recovery it goes really slowly. The catch is is issues like the national debt and the level of private-sector bad debts. Accordingly on that road another default looks unavoidable.

  4. Hi Shaun, I think this is the third time I’ve posted on this blog! Firstly, just after you kicked it off, then I followed you to Mindful Money about three or four years ago. Then a bit later on it turned out the people who started Mindful Money weren’t quite as mindful of their money as they might have been, so we were back here for a few weeks… then MM was rescued… and now here we all are back again. I appreciate MM has become more of a professional advisers’ site, but I don’t honestly see how they can compete with the main titles from Haymarket etc. I don’t regularly read many of the other bloggers on MM, except Simon Ward, nor do I know any other advisers who even know the site exists. So good luck to them without you but I have my doubts…

    A desire to learn about the Greek predicament is what drew me to notayesman in the first place, so it’s apt to start of again in the same vein. Yes, it is very depressing to realise that in those four or so years, things have not got one single bit better; in fact they are far worse. Nor do I see any prospect of an end result for the Euro-crisis other that the mother and father of all defaults.

    Anyway, best of luck and keep up the good work!

    • Hi Andy and thank you.

      I think it is important to return to what is happening in Greece because I think the story there needs to be told. As I pointed out in the article much of the media seems content to copy and paste official press releases. Whereas in reality there much be considerable discontent and suffering.

      As to Mindful Money I continued working first time around when it was ending. I hoped that might help the staff keep their jobs. As it turned out I helped save the site but not their jobs! You can only do your best I guess……

  5. Hello Shaun,

    the paucity of the brains in MSM astounds me , although I am no longer surprised at the witterings of Euro pollies and leaders any more

    Dead Cat bounce

    Eventually Greece will see some growth and then the Euro Circuses will be out saying it was all worth while whilst ignoring that the Pre – euro greek economy was in better shape !

    Meanwhile the trough is full of swill for their political masters………..

    I am worried that things will be really rough for them next year . I guess the lower oil price will help but Greece is still a costly place to visit……

    Bring back the Dracma now and look to Iceland now my fellow Greeks !!


    • Hi Forbin

      In my opinion the choice was between the Greek people and the French and German banks and the banks won. The IMF should be ashamed of itself for its part in this but of course it has been run by French politicians. The default and devalue option would have hurt the French and German banks.

      Tourism numbers seem good but good exports seem weak so let us hope that a few Greek industries have been waiting for a lower oil price.

  6. Hi Shaun – “What if Greece does not return to economic growth this year or in 2015?”

    Well, I’m certain that while it has been improving (i.e. it’s deterioration has slowed dramatically) it’s not going to grow this year or next (but watch what may happen in 2016) but Shaun you haven’t suggested possible consequences of that outcome, which is what I am interested in??

    • Hi Noo2

      I was posing the question somewhat rhetorically but am happy to fill in a few gaps. There will have to be some combination of another bailout and a default. Frankly probably both.

      It was interesting last week that the ECB put pressure on Greece to remain in the bailout programme as without it there is very little in Greece which will qualify for its ABS purchase efforts. So it too seems to think there is another squeeze coming….

      At some point the Greek people have surely got to throw their shackles off but when that comes is impossible to say.

  7. Hi Shaun – “What if Greece does not return to economic growth this year or in 2015?”

    Well, I am certain that itwon’tgrow this tear or next (but watch what may happen in 2016) but Shaun, you havent suggested possible outcomes if /when your question proves correct which is what I am interested in??

  8. I feel slightly bad that I never did step out of your shining Ivory Tower to investigate the rest of mindfyl money.

  9. Hi Shaun,
    it seems that the only way in which top-level economists resemble scientists is in their absolute disregard for the consequences of their actions, in regard to their fellow human beings.

    The real shame is that they have managed to wrest away the political classes with them, and they also speak in the same dry, inhuman phrases.

    The Greeks have my profound sympathies, but it’s plain for all to see that, somewhere down the road, our turn is coming.

    PS. Sorry things went pear-shaped at MM.

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