Wednesday, 19 June 2013

A look at economic sentiment in Greece

I have to admit that I’m not a big fan of economic climate/sentiment indicators. That does not mean that I also dismiss the importance of sentiment and its undisputable effects on economic activity.

We hear a lot about how sentiment regarding the Greek economy has (or rather had) improved these past few months. If I said that I was willing to take that with anything less than a grain of salt I would be lying. 

Here’s one chart though that I came up with after messing about with sentiment indicators and investment activity. (I calculated tri-monthly averages of the industrial confidence indicator so that I could somehow compare its trajectory with investment). The industrial confidence indicator is depicted in the right hand scale while investment in the left hand one.

source: Eurostat, DG ECFIN, own calculations

There is no denial that the big spike in machinery investment observed in Q4 2012 was made easier by the (low) base effect, nonetheless it was the first positive reading since 2008. The 1st quarter of 2013, investment was flat on a yearly basis and the 4-quarter moving average reached its higher level since late 2009. At the same time sentiment, in Q1 2013 stood at its highest level since late 2008.

source: Eurostat, own calculations

I know it doesn’t sound like much and it is nothing much but for a country in the state that Greece finds itself into, it is a start. I would very much like, or rather, I very much dread to find out where the relevant indicators will stand in June and July 2013. I’m afraid that renewed political uncertainty will take its toll on these fragile green shoots look-alikes and sentiment will take a dive again. If nothing else the said readings will be as good as an event study regarding the effect of political uncertainty on business sentiment. 


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