The economic depression in Greece looks set to continue

by Charles Hugh-Smith

A feature of the economic crisis that enfolded in Greece was the fantasy that economic growth would quickly recover. It seems hard to believe now that anyone could have expected the economy to grow at 2% ot so per annum from 2012 onwards but the fans of what Christine Lagarde amongst others called “shock and awe” did. I was reminded of that when I read this from the International Monetary Fund on Tuesday.

Greece has now entered a period of economic growth that puts it among the top performers in the eurozone.

That is to say the least somewhat economical with the truth as this from the Greek statistics office highlights.

The available seasonally adjusted data
indicate that in the 4th quarter of 2018 the Gross Domestic
Product (GDP) in volume terms decreased by 0.1% in comparison with the 3rd quarter of 2018.

So actually it may well have left rather than entered a period of economic growth which is rather different. Over the past year it has done this.

in comparison with the 4th quarter of 2017, it increased by 1.6%.

What this showed was another signal of a slowing economy as 2018 overall was stronger.

GDP for 2018 in volume terms amounted to 190.8 billion euro compared with 187.2 billion euro for 2017 recording an increase of 1.9%.

There is a particular disappointment here as the Greek economy had expanded by 1% in the autumn of last year leading to hopes that it might be about the regain at least some of the ground lost in its depression. Now we find an annual rate of growth that is below the one that was supposed to start an up,up and away recovery in 2012. Nonetheless the IMF is playing what for it is the same old song.

We expect growth to accelerate to nearly 2½ percent this year from around 2 percent in 2018. This puts Greece in the upper tier of the eurozone growth table.

Money Supply

This has proved to be a good guide of economic trends in the Euro area so let us switch to the Bank of Greece data set so we can apply it to Greece alone. The recent peak for the narrow money measure M1 was an annual rate of growth of 7.3% in December 2017 and then mostly grew between 5% and 6% last year. But then the rate of growth slowed to 3.8% last December and further to 2.7% in January.

I am sorry to say that a measure which has worked well is now predicting an economic slow down in Greece and perhaps more contractions in the first half of this year. Looking further ahead broad money growth has slowed from above 6% in general in 2018 to 4.2% in December and 3.3% in January. This gives us a hint towards what economic growth and inflation will be in a couple of years time and the only good thing currently I can say is that Greece tends to have low inflation.

The numbers have been distorted to some extent by the developments mentioned by the IMF below but they are much smaller influences now.

 For example, customers are now free to move their cash to any bank in Greece, and the banks themselves have almost fully repaid emergency liquidity assistance provided by the European Central Bank.

The Greek banks

Even in the ouzo hazed world of the IMF these remain quite a problem.

Third, we are urging the government to do more to fix banks, which remain crippled by past-due loans. This will help households and businesses to once again be able to borrow at reasonable interest rates.

They have another go later.

Directors encouraged the authorities to take a more comprehensive, well-coordinated approach to strengthening bank balance sheets and reviving growth-enhancing lending.

There are two issues with this and let me start with how many times can the Greek banks be saved? Money has been poured again and again into what increasingly looks like a bottomless pit. Also considering they think bank lending is weak – hardly a surprise in the circumstances – on what grounds do they forecast a pick-up in economic growth?

Back on the 29th of January I pointed out that the Bank of Greece was already on the case.

An absolutely indicative example can assess the immediate impact of a transfer of about €40 billion of NPLs, namely all denounced loans and €7.4 billion of DTCs ( Deferred Tax Credits).

So the banks remain heavily impaired in spite of all the bailouts and are no doubt a major factor in this.

vulnerabilities remain significant and downside risks are rising……………. If selected fiscal risks materialize, the sovereign’s repayment capacity could become challenged over the medium term.

That would complete the cycle of disasters as about the only bit of good news for the Institutions in the Greek bailout saga is this.

The government exceeded its 2018 primary fiscal balance target of 3.5 percent of GDP,

Moving out of the specific area of public finances we see that money is being sucked out of the economy to achieve this which acts as a drag on economic growth.

The Eurogroup

It does not seem quite so sure that things are going well as it refrains for putting its money behind it at least for now. From Monday.

The finance ministers of the 19-member Eurozone have decided to postpone disbursing 1 billion euros ($1.12 billion) to Greece.

The reason for postponing the payment is that Greece has not yet changed the provisions of a law protecting debtors’ main housing property from creditors to the EU’s satisfaction. ( Kathimerini).

Euro area

The problem with saying you are doing better than the general Euro area is twofold. If we start with the specific then it was not true in the last quarter of last year and if we move to the general Greece should be doing far, far better as it rebounds from the deep recession/depression it has been in. That is not happening.

Also beating the Euro area average is not what it was as this from earlier highlights. From Howard Archer.

Muted news on  as German Economy Ministry says economy likely grew moderately in Q1 & warns on industrial sector. Meanwhile,  institute cuts 2019  growth forecast sharply to 0.6% from 1.1%, citing weaker foreign demand for industrial goods.

Some have been pointing out that this matches Italy although that does require you to believe that Italy will grow by 0.6% this year.

Comment

Let me shift tack and now look at this from the point of view of how the IMF used to operate. This was when it dealt with trade issues and problems rather than finding French managing directors shifting its focus to Euro area fiscal problems. If you do that you find that the current account did improve in the period 2011-13 substantially but never even got back to balance and then did this.

The current account (CA) deficit was wider than anticipated, reaching 3.4 percent of GDP (though in part due to methodological revisions). Higher export prices and strong external demand were more than offset
by rising imports due to the private consumption recovery, energy price hikes, and the large import share in exports and investment. The primary income deficit widened due to higher payments on foreign investments.

That is quite a failure for the internal competitiveness model ( lower real wages) especially as we noted on January 29th that times were changing there. So the old measure looks grim in fact so grim that I shall cross my fingers and hope for more of this.

The tourism and travel sector in Greece grew 6.9 percent last year, a rate that was three-and-a-half times higher than the growth rate of the entire Greek economy, a survey by the World Travel and Tourism Council (WTTC) has noted.

The survey illustrated that tourism accounted for 20.6 percent of the country’s gross domestic product, against a global rate of just 10.4 percent.

This means that one in every five euros spent in Greece last year came from the tourism and travel sector, whose turnover amounted to 37.5 billion euros. ( Kathimerini ).

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