Sometimes it is good to look at things from another direction so let me start by looking at the current situation through the prism of financial markets rather than the real economy. From @tracyalloway.
Greek government bond yields below 3%
I will return to the why and therefore of this in a moment but let me first move onto the stock market. Here is an article from Forbes from Saturday.
Greece’s stock market rose sharply this week, following a big defeat of the ruling leftist coalition in Regional and Euroelections last Sunday.
The Global Shares X FTSE shares (GREK) have gained 9.10%, as most financial markets around the world lost ground. Banks were particularly strong, leading the rally.
As you can see that was different to many other equity markets and continues stronger performance this year. If we move to the ASE General Index it at 828 is just under its high for the year and is up nearly 9% this year and around 35% on a year ago.
If we return to the bond market then there are two clear perspectives. The first is that we have yet another day of singing along with the Black-Eyed Peas.
Boom boom boom
That boom boom boom
That boom boom boom
Boom boom boom
We have seen yet another all-time high for the benchmark German bond or bund as the ten-year yield has fallen to -0.21%. That has something of an ominous portent for the world economy if traders are correct. As we note that this time around Greece has joined the party there are nuances.
EFSF financial assistance, part of the second programme, ran from March 2012 through June 2015. In this programme, the EFSF disbursed a total of €141.8 billion, of which €130.9 is outstanding………….Together, the EFSF and ESM disbursed €204 billion to Greece, and now hold more than half of its public debt. ( European Stability Mechanism)
So as you can see there are a lot fewer Greek bonds in circulation than there were, as they have been subsumed into EFSF/ESM system. This has had a consequence for volumes in the market as @Birdyworld points out.
When people are talking about Greek government bond yields it’s worth remembering that it’s basically not a market any more. The average month from 2001-2010 saw 42bn euros in secondary market transactions. The ENTIRE transaction volume 2011-2019 is 29bn euros.
This is a point I remember making back in the early days of the crisis when the ECB was buying Greek bonds to support the market that volumes went off the edge of a cliff. So the bond market does not tell us what it used to.
Also the stock market has improved but when we note it was previously above 5000 we can see that some context is required there too.
We can continue with something of a positive gloss as we note this from earlier this morning.
The Greek manufacturing sector strengthened further in
May. Production and new order growth remained sharp,
with employment continuing to rise. Domestic and foreign
demand were still resilient as new export orders rose strongly………… Currently, IHS Markit forecasts a 3%
increase in industrial production in 2019, with the rate of
unemployment set to fall to 18.3% by the end of the year.
That was from the Manufacturing PMI release which contrary what you might think was in fact lower at 54.2 as opposed to the previous 56.6. But according to this measure there has been a sustained improvement.
The latest headline PMI figure extended the current sequence of expansion to two years.
However some care is needed because if we look at the official data the numbers have improved so far in 2019 but if we look back the two years to March 2017 we see that output is in fact a little lower than the 104.92 of back then. The current reading of 104.03 is also a fair bit lower than the around 110 of last July.
This is a crucial area because this was the modus operandi of the IMF (International Monetary Fund). The problem is highlighted by these figures from the Bank of Greece.
In March 2019, the current account deficit came to €1.5 billion, up by €352 million year-on-year, as a result of an increase in the deficit of the balance of goods, and notwithstanding the improved services balance. Additionally, the primary and secondary income accounts deteriorated………..In the first quarter of 2019, the current account deficit came to €3.7 billion, up by €420 million year-on-year, as the improved services balance and primary income account only partly offset a deterioration of the balance of goods and the secondary income account.
When we consider the extent of the economic depression that Greece has been through this is a pretty shocking result. All that pain to still be in deficit. Even worse any sort of stabilisation and maybe improvement seems to come with more imports of goods.
Imports of goods grew by 6.0% at current prices and 4.1% at constant prices. ( first quarter 2019).
The Greek shipping industry seems to be booming against the world trend but was unable to offset the higher imports.
Sea transport receipts rose by 18.9%.
The good news is that narrow money growth or M1 has been picking up in 2019. However at 6.3% in April it remains below that of the wider Euro area so that is not entirely heartening. The numbers were especially weak around the turn of the year so we cross our fingers for tomorrow’s economic growth release for the first quarter.
Also we need to be cautious as Greece does not have its own money supply so these are numbers which make more assumptions than usual. Central bankers will find something to cheer in this however.
According to data collected from credit institutions,(1) nominal apartment prices are estimated to have increased on average by 2.5% year-on-year in the fourth quarter of 2018, whilst in 2018 the average annual increase in apartment prices was 1.5%, compared with an average decrease of 1.0% in 2017.
If you want to see a bear market though this has provided it with the overall index being at 60.5 at the end of 2018 where 2007 =100.
There have been some changes in the Greek situation but some things look awfully familiar. From Kathimerini.
There will be no service on the Athens metro and tram from 9 p.m. on Monday as workers walk off the job to protest understaffing, cutbacks and the privatization of public transport.
Also considering its share price you might think Deutsche Bank would have better things to do than troll Greece.
Greece should not sacrifice the credibility and discipline it has earned with such sacrifice in the past few years to short-term measures, warns Ashok Aram, Deutsche Bank’s regional CEO for Europe.
The Greek economy was sacrificed on the altar of turning the public finances into a sustained surplus. It is hard to believe that it was supposed to return Greece to economic growth ( 2.1% was forecast for 2012) whereas the contraction approached 10% at times. Sometimes I have to pinch myself when I see the media proclaiming the views of those responsible for this as being of any use, but that is the world we live in. But the reality is that after a depression which contracted the economy by around a quarter we still have to look hard for clear signs of a recovery or if you prefer the shape of it is an L rather than a V.
The world can be so upside down at times that we cannot rule out we might see a Greek bond with a negative yield.
I look at why bond yields have dropped so sharply in the past few weeks.