Tuesday, 3 July 2018

Assessing the breadth of the current Greek recovery

We keep hearing about the "Greek recovery". International media outlets have got on the wagon and the Greek government is certainly doing its best in making it sound as if Greece has finally turned the page after the monumental crisis we went through the past (not so) few years. But is that the case?

For some time now I wanted to do a post assessing the breadth of the Greek recovery. The novelty of the current post is twofold. First, I used nominal (and not real) variables. The reason is that, on top of everything else, I wanted to gauge how the recovery is being felt on the ground at the moment and since we're living in a nominal world (and since very small enterprises account for the lion share of the Greek corporate universe - and these are not paradigms of sophistication in this respect) I thought that this is the way to go. The other novel aspect of this post is that I wanted to look at the whole thing from the production side. So I took a look at sectoral turnover indices that ELSTAT publishes to see how big a chunk of those sub-sectors are in expansion. A sub-sector was deemed to be in expansion if it experienced year-over-year (YoY) turnover growth.

This whole thing took a bit of data crunching to come into fruition as some of the turnover indices that ELSTAT publishes are in monthly format while others are in quarterly format so some adjustments had to be made. Unfortunately not all sectoral indices could be used after all due to spotty data. Luckily, the ones dropped account only for a small part of total gross value added and employment. On the other hand, it has to be said that the sectors for which ELSTAT publishes such indices account for 47% of total gross value added and 53% of total employment. But still one has to make do with what he/she has. 

The sectors included in the following calculations are Industry, Retail Trade, Wholesale Trade, Tourism and Professional, scientific and technical activities; administrative and support service activities. One's got to admit that the aforementioned list seems much more satisfying and full than what the chunk of total value added and employment its components account for would imply at first sight.

It's finally time to take a peek at what the breadth of the recovery for the dataset components with the most sub-sectors looks like. Here's the chart for industry.

source: ELSTAT, own calculations

One can see that while the 4-quarter MA of the number of Industry's sub-sectors in expansion has not exactly matched the heights reached during the 00s expansion, it is not lagging far behind.  One worrying aspect is that the number of sectors in expansion has not surpassed 2016's highs.

source: ELSTAT, own calculations

Moving on to Retail Trade, we can see that the 4-quarter MA of the number of sub-sectors in expansion significantly lags the levels seen during the 00s' expansion, something that is consistent with the fact that households' final consumption expenditure has decreased for the past 3 quarters under the weight of over-taxation (among others). The lofty primary surpluses that the country is supposed to achieve for the next many years as well as the current mix of measures picked, certainly do not fill someone with confidence as far as private consumption's chances to be the driver of the recovery for the foreseeable future.  

source: ELSTAT, own calculations

The picture is more or less the same as far as Services are concerned, the only difference being that the number of sub-sectors in expansion is not only lagging behind the heights reached in the 00s but also cannot seem to be able to completely recover from the tumble that the disastrous first half of 2015 brought on. What one has to factor in here is that these particular service activities are rather heavily taxed at the moment. 

If we put all those sub-sectors together and we calculate what percentage of them is in YoY expansion we get the following chart.

source: ELSTAT, own calculations

The 4-quarter MA of the percentage of sectors in expansion is currently ~24% lower than the highs of the 00s' expansion and ~15% lower than the 2001 - 2007 period average. The good thing is that after consolidating during 2015 - 2017 the MA of the number of sectors in expansion seems to be growing again. Let's hope that this keeps. 

To wrap this up, the current Greek recovery certainly feels more lackluster at the moment than what a "normal" recovery would. This could be due to the fact that it is still in its early stages but at least part of the blame has to be put on the overly restrictive current fiscal policy stance (while I'm anything but against fiscal discipline, I think that this is way over the top) as well as the severely sub-optimal mix of fiscal measures chosen. Finally, while the supposition that the current recovery is still at its early stages leaves some room for optimism, the fact that monetary policy worldwide is gradually becoming less expansionary as well as the potentially growth-harming policies being enacted worldwide, certainly curtail part of that optimism.

Wednesday, 25 April 2018

Looking back: the catalysts of Greece's trade balance adjustment

It certainly is no secret that Greece has experienced a massive trade balance (or goods & services balance if you prefer) reversal since 2008-2009. Now that the said adjustment appears to be going through a phase of consolidation it is interesting to see what the catalysts of the move were thus far.

source: Bank of Greece, own calculations

The basis of our calculations will be the absolute change in Goods & Services Balance components  between February 2018 (latest data available) and September 2008 (the month that the highest deficit was posted). We will use the 12-months moving sum of those components in order to smooth out monthly fluctuations and discern trends more clearly.

During the aforementioned period Greece's good & services balance deficit contracted by 28,55 billion EUR. Goods imports decreased by 21,49 bln EUR, so we got the biggest contributor right here, while at the same time, services exports fell by 7,28 bln. Moving on to the other side of the ledger, goods exports grew by 5,94 bln while services exports decreased by 6,17 bln EUR.

source: Bank of Greece, own calculations

If we add up the contributions of total exports and imports we can see that exports made a -223 mln EUR contribution while imports accounted for the whole of the adjustment. It is interesting to drill down a bit more and see how different categories of exports did, which sectors were salvaged and which ones are mostly to blame for this dismal headline figure performance.

The thing with goods exports is the dispersion of readings that different data sources provide. If one used ELSTAT's figures for merchandise exports he would arrive at the conclusion that they increased by 8,12 bln EUR in the period examined. If Eurostat's SITC figures were used, the same figure would stand at 8,036 bln while, as mentioned above, Bank of Greece's data pegs that same number at 5,94 bln. And exports potentially increasing by ~2 bln more in the period we are looking at makes a big difference.

source: Bank of Greece, ELSTAT, Eurostat, own calculations

Anyway, we'll use SITC data to see how each different sectors' merchandise exports performed because it's the only one out of the three sources that provides sectoral data.

source: Eurostat, own calculations

Oil Products make up for 57% of goods exports' increase, while Food Products are in second place with 16,2% of total and Chemicals in 3rd with 7,8%. The top spots for biggest contributors to Greece's merchandise exports growth are taken up by sectors with a low technological content (with the exception of Chemicals). No surprise there, sadly.

Moving on to services, whose dismal performance must have come as a surprise to most people as Greece abroad is mostly associated with Shipping and Tourism. Well, it is exactly due to Transportation Services' exports plummeting by 10,34 bln during the said period that services' exports contribution was negative since Travel Services and Other Services were up by 2,94 bln and 1,22 bln respectively.

source: Bank of Greece, own calculations

It is worth noting that transportation services' dreadful performance can be traced to two different reasons. The first is the fact that the sector never recovered from 2009's Great Financial Crisis and the second one is the imposition of Capital Controls in Greece in the end of the first half of 2015 which resulted in a 46,3% drop (if one compares the month before the CCs imposition with the post-CCs trough).

source: Bank of Greece,own calculations

To wrap this up, the monstrous goods & services balance adjustment that Greece experienced these past 10 years was effected through a contraction of imports. Contrary to what most people would expect, goods exports did better than those of services (due to the dismal performance of shipping). The Greek economy's structure did not assist in making the adjustment more balanced and  easing the pain. Hopefully, the country's current plight has driven home the message that the country needs to move beyond relying solely on consumption to stoke growth and that attention must be paid to the supply side too. Of course, for the economy's fundamentals to change, copious amounts of fixed investment are needed and well, this is an area that things are currently "a bit" slow over here...

Tuesday, 16 January 2018

The forgotten ones: Greece's ultra long-term unemployed

Unemployment in Greece has been decreasing these past 4 years but I'm afraid that this only means it went down from ridiculously high levels to what can be charitably characterized as pretty damn high levels. Still, it is a start (hopefully) and it is definitely better than nothing. 

source: ELSTAT, own calculations

It is interesting to drill down a bit deeper than headline figures and take a look at long-term unemployment and contrast its behaviour with that of short(er)-term one.

First of all, it should be noted that in Greece, the long-term unemployed (defined as those people that are unemployed for more than 12 months) account for a much higher share of total unemployment, than they do in the Euro Area as a whole. What's more, the spread between the two figures has grown during the current depression, while at the same time long-term unemployment's share even seems to be increasing in Greece.

source: Eurostat, own calculations

Eurostat publishes a detailed breakdown of unemployment figures according to the length of the unemployment spell. If we re-base those separate series to each one's respective peak we can assess a couple of different things. First, if shorter-term unemployment peaked earlier than longer-term quintiles and second, if unemployment duration is correlated to how fast each series decreased after it reached its peak.

Here's the relevant chart. I apologize for it being a bit bungled up but I guess that in order to make visual comparisons "possible", it couldn't be any different.

source: Eurostat, own calculations

The answer to both questions posed above is more or less positive. Short-term unemployment (less that 12 months) did indeed peak first and decreased faster after that. At the same time, ultra long-term unemployment (more than 48 months) peaked last with 2017 being the first year during which it has posted a hesitant decrease. Interim long-term unemployment cohorts broadly follow along these lines (12-17 months unemployment peaked and started decreasing faster than 18-23 and 24-47 but on the other hand, 24-47 unemployment decreased faster than 18-23).

If one wants an alternative representation of unemployment in Greece based on how different duration cohorts evolved here it is.

source: Eurostat

The chart makes more than obvious how ultra long-term unemployment (> 48 months) is not really budging.

It would be interesting to try and compile the profile of the people that find themselves locked into that seriously detrimental state that is ultra long-term unemployment.

While international and local media make a lot of noise about youth unemployment, the elephant in the room, as far as long-term unemployment is concerned, is old-age unemployment. People over 45 years old account for about 40% of the long-term unemployed with their ranks having swelled considerably after the depression broke out. To be precise though, the trend towards older-age unemployment accounting for a bigger chunk of long-term unemployment has been there for quite some time and is more structural in nature.

source: ELSTAT

The sectors from which the long-term unemployed come from are all over the spectrum. This makes sense since, especially before the crisis, virtually all sectors of Greece's economy were mostly inward-oriented meaning that the sudden-stop and ensuing collapse in domestic demand hit all of them.

source: ELSTAT

On top of the rank one finds "persons that cannot be classified" which probably stands for people that either refused to answer the relevant question or for younger people that have yet to hold their first job.

To wrap this up, while everyone is going on about youth unemployment a thought should be spared for the older-age unemployed too. These people face considerable challenges, namely skill-sets that have become obsolete, social exclusion, a lower probability of having family to support them through this etc. Also, the most-efficient re-allocation mechanism (i.e. the market) has chucked them out and they mostly have to depend on active labour market policies (ALMPs) and the Greek state's limited financial means to fund these. Fingers crossed for all the people that find themselves in that psychologically (and potentially physically) scarring situation and let's hope that an investment boom (now how improbable does that sound?!) will lift all boats and get them back into the fold.

Wednesday, 22 November 2017

Greek governments and GDP forecasting: not a good match

It was state-budget submission time in Greece yesterday and as it is natural I guess, out of the whole budget, most people paid attention to a few figures, namely the primary surplus envisaged and the GDP growth rate projection. In this post I'd like to zero in on the latter. 

The GDP growth rate projected by the respective Greek government is regarded with heavy scepticism (bordering on irony) by both the press and the wider public. Hence, I believe that it would be interesting to look at what the actual data tell us.

The data I'll look at here are those concerning those budgets that are available in the Hellenic Finance Minstry's website, i.e. those from 2007 onwards.  

Here's how these projections stack up against actual growth rates.

source: Eurostat, Hellenic Finance Ministry

And here is the same chart but in a slightly altered form. A positive reading means that, GDP-wise, things turned out better than envisaged while a negative one that they turned out worse.

source: Eurostat, Hellenic Finance Ministry, own calculations

If we look at the chart above and break it up in sub-periods according to which government was in office so as to evaluate their GDP-forecasting skills (or should I amend this to "the Finance Ministry's forecasting skills while they were in office"? hmm) we can see that: 

- the 2007 - 2009 ND government (not in office when the 2010 budget was voted though) didn't do very well, as far as GDP forecasting is concerned.
- the 2009 - 2011 PASOK government (not in office when the 2012 budget was voted upon, but only just) didn't do that well either.
- the Nov 2011 - May 2012 PASOK - ND - LAOS coalition government under Loukas Papademos' projections proved to be too optimistic as well (of course the time between them coming into office and voting on the budget was too short).
- the 2012 - 2014 ND - PASOK government has the most stellar record among those commented upon here since in both of the years that they were in office GDP turned out better than projected.
- finally the Syriza - ANEL - Greens coalition government's performance is a mixed bag since 2015 turned out far worse than predicted, while 2016 turned out better and now 2017 is en route for a miss (since for the 2,7% projection to come into fruition Greece's GDP has to grow by ~4,85% on average in the two remaining quarters of 2017).

There's a number of reasons that those forecasting misses can be blamed upon, e.g. the change in trend which is when projection misses usually occur, the depth of the recession that was hard to forecast etc. but the fact remains that Greek governments and GDP-forecasting are definitely not a match made in heaven.

I'll wrap this up by way of posting a chart showing what Greece's GDP would be today if government projections were proved to be correct vs. where it actually stands. 

source: Eurostat, Hellenic Finance Ministry, own calcualations

Makes you wish they'd got it right, eh? If they had, Greek GDP would be ~25% higher today...

Friday, 20 October 2017

The Odyssey of the Greek Middle Class

It is said that a country's middle class is the bedrock of its democracy. Hence, saying that its prosperity should be considered tantamount by anyone who believes that democracy is the optimum form of government, cannot be dismissed as  an exaggeration. But what happens in a country such as Greece where household incomes have been clobbered by a depression that saw GDP decrease by as much as 28% (peak-to-trough)? How did the Greek middle class fare throughout the depression?

First, one has to define middle class. ELSTAT's household budgets survey divides households into eight income classes. My intention is to deem the lower two income classes (0 - 1100 EUR) as the "lower class", the middle four ( 1101 - 2800 EUR) as the "middle class" and the two highest (>2801) as the "upper class".

So, what happened to the Greek middle class? Did it suffer the same fate that Greek GDP did?

Well, as counter-intuitive as it is, it actually didn't dwindle. On the contrary, it grew. In 2016 the aforementioned definition of Middle Class accounted for ~54% of Greek households compared to 49,5% in 2008.

source: ELSTAT, own calculations

Of course this can be attributed in its entirety to the fact that what was defined here as the "Upper Class" lost 2/3 of its pre-depression mass. Most likely the households that left the two upmost income brackets migrated to those "right" below (although one can hear plenty of anecdotal evidence of much more extreme moves across brackets). At the same time, the "Lower Class" doubled in size so that in 2016 it accounted for ~33% of Greek households compared to ~15% in 2008.

The next graph charts the change in the number of households in each income class.

source: ELSTAT, own calculations
If we combine data from this chart with those from the next one (which depicts what chunk of middle class' total, households belonging to each of its four income classes account for) we can see that contrary to 2008 when the lower brackets represented about 45% of total they now correspond to a bit more than 55%. So, despite growing slightly in size, it becomes evident that Greece's middle class has, on a whole, become poorer. Now that is definitely more intuitive.

source: ELSTAT, own calculations
All in all, contrary to what someone would expect Greece's middle class didn't dwindle in number but it certainly hollowed out. Despite the move downwards already in place, insecurity and low morale due to the threat of even further downward mobility are hanging above Greek Middle Class' collective head like Damocles' sword. Here's to hoping that Greek middle class will hold.

Friday, 22 September 2017

The Greek manufacturing rebound charted.

Anyone casting even a furtive glance at Greek macro data must have noticed that Greek manufacturing is currently staging a much needed bounce. A bounce that still belongs to the "too little too late" category if one compares its magnitude to that of the massive contraction that the sector underwent during the 2008 - 2012 period. Let's drill down a bit more and look at the specifics of this bounce and the underlying situation in individual sub-sectors.

source: ELSTAT, own calculations

In case someone wants some perpective, it should be remarked that the lowest the overall production index got was 30,3% off its highs and that the current bounce brings it 10,4% off its lows, i.e. it currently stands 23,1% off its late-2007 highs.  

source: Eurostat, own calculations

I thought that it would be very interesting to see the overall index's moves de-composed into these of its main components (unfortunately the narrowest de-composistion ELSTAT offers, includes 24 sub-sectors and since I couldn't find a similar methodological explainer for Eurostat so I went for that) so I re-constructed the headline index from scratch. The resultant index wasn't an exact replica (for reasons that obviously elude me) of the original but it was decent enough I think. Anyway, here is how it stacks up compared to the real thing.

source: ELSTAT, own calculations

And here is the decomposition. I know one gets woozy by all the tiny coloured bars but I did my best to give somewhat flashier colours to the index's main components (i.e. Food ~ 19,87%, Oil Products ~ 15,08%, Basic Metals ~ 7%, Beverages ~ 8%, Non-metallic Minerals ~ 8% of total).

source: ELSTAT, own calculations

The current rebound's catalysts are mostly oil products, basic metals and pharmaceuticals while beverages and non-metallic minerals contributed too to the previous big production spike in mid-2016.

Headline figures show that momentum is currently waning but this could very well be due to one or two big sectors slowing while, beneath the hood, growth remains broad-based and buyoant. One way to see if this is the case here is to count the sub-sectors that are currently in expansion mode. 

source: ELSTAT, own calculations

It seems that, below the hood too, the rebound is indeed moderating since out of the 24 sub-sectors charted here, just 8 were expanding in July compared to a high of 21 in July 2016.  

Taking a look at individual sub-sectors, it seems that the only one going through a phase of - seemingly - unhindered growth is pharmaceuticals whose production is climbing to new highs compared to all the other sectors that still try to reach their previous highs. What's more, secondary, mostly inward-oriented sectors, have been all but annihilated by the crisis, with their current production levels hovering at about 20% of their pre-crisis highs.

source: ELSTAT, own calculations

To wrap this up, the current rebound in Greek manufacturing is decent in magnitude but it currently appears to be slowing. It remains to be seen whether it will gain steam again of the current policy mix of over-taxation, high energy costs and cost-of-capital will make it succumb to the pressure.

Saturday, 12 August 2017

Greece's Consumer Price Index components analysis for 2010 - 2017

For quite some time now I wanted to take a look at Greece's Consumer Price Index in order to gauge each of its components' contribution to the headline figure. I somehow though never got round to it. Now, during a viciously hot August in Athens that makes sleeping at nights "a tad" harder, I finally managed to sit down and do it.

I used the 12 sub-indices that ELSTAT publishes along with their respective weights to translate their monthly, year-on-year, changes into their contributions to the headline figure. If those are used to re-construct the overall index, this is how the constructed index compares to the actual one. Good enough, I think. 

source: ELSTAT, own calculations

Since 2014 ELSTAT is supposed to revise the sub-indices' weights every year according to the Household Budget Survey, something that undoubtely improves the National CPI's quality and representativeness. That said, I haven't managed to find any revised weights for 2017... *sigh*

So, here's the relevant chart. 

source: ELSTAT, own calculations
As it is plain to see, the drivers of the 2010-2011 inflation spike were none other than the sub-indices covering the sectors for which indirect taxes were hiked (i.e. housing, transportation, food, alcoholic beverages and tobacco) while the rebound in crude prices in 2010 and the first half of 2011 also played a role.

Also interesting, that the main drivers of the second leg of the infamous Greek deflation were the sub-indices that where affected by the fall in crude's prices (i.e. housing due to heating oil and transportation). On the contrary, its first leg was significantly more broad-based but, as mentioned in an older post, since the turning of headline inflation to negative territory was preceded by an analogous move of the import price index, the catalyst also seems to be not domestic.

The signing of the 3rd Greek MoU in July 2015, which foresaw a hike in VAT for food items and the tourism sector, translated into inflationary pressures stemming almost exclusively from these two areas.

Finally, the move from deflation to inflation in early 2017 was driven from those sub-indices that were affected by the positive year-on-year change in crude prices, i.e. housing and transportation, while the tourism sector also contributed.

To wrap this up, it seems that some of the policies pursued due to the Greek MoU were not deflationary at all. On the contrary, they proved to be rather inflationary since their result was the highest inflation reading for Greece post-2000, in 2010. On the other hand, the notorious Greek deflation was mostly due to import prices falling, while the catalyst behind Greece's swing to positive inflation in 2017 was also a change in import prices, this time a surge.

P.S. In case someone's interested, here's the evolution of CPI sub-indices' individual weights. The increased importance for food items and housing will probably work towards making Greek CPI more volatile.

source: ELSTAT