Greek GDP figures for Q3 2015 - back into negative territory

Final GDP figures for the 3rd quarter came out today and, surprise-surprise, there was a downward revision compared to flash estimates. So, in seasonal-adjusted terms, in Q3 2015 Greek GDP decreased by 1,1% compared to a year earlier.

source: ELSTAT

Let's drill down a bit more and see how individual GDP components fared.

source: ELSTAT, own calculations

As one notices right away when looking at the chart we're back at the stage where imports' decreases are almost the sole positive contributor to GDP. What's more this was the largest fall that Greek imports have recorded since the Great Trade Collapse (the systemic collapse of international trade flows in 2009). We should all thank the imposition of capital controls for that. 

We should also thank our new friend (i.e. capital controls) for the collapse in exports as well since Greek firms had trouble importing inputs. 

Finally, fixed investment came back to being a negative contributor after posting positive contributions in the 3rd and 4th quarter of 2014 and the 1st quarter of 2015.

Let's see how big a hole we've dug ourselves into this time...

VAT increases showing up at Greek inflation data.

Effective July 20th the VAT rate in a number of products and services was raised in Greece. Of course this was immediately felt through increases in the relevant HICP sub-indices. 

I have singled out a couple of them, each one for different reasons.

First, there is a big spike in the Food component. One has to note though that the index had recorded minor increases prior to August throughout 2015 but the effect of the VAT hike is easily discernible.

source: Eurostat

This is a straight hit to lower income brackets since they spend a larger chunk of their income to necessities.

The other sub-index whose trajectory is interesting in my humble opinion is Restaurants and Hotels since it covers, perhaps the only sector of the Greek economy that is, or rather was, booming. It remains to be seen what the future holds for Greek tourism.

source: Eurostat

I have expressed my worry regarding how the tourism sector will perform in an environment of prices increases in the past. More on that subject next year I suppose. 

All-items HICP didn't record an actual increase but the deflation rate slowed down significantly. I don't know if we'll get positive figures for the headline index but with the food and most likely education (not defitive yet since our government does it's best to show everyone that it means business - insert sarcasm here) sub-indexes spiking there's no need. This is gonna feel pretty "good" for households and "experts" denouncing deflation as the mother of all ills. Well, when the demand curve shifts to the left deflation is only a natural consequence. If the supply curve shifts to the left too (as it did in Greece) then equilibrium  moves lower and we get a little more time of deflation. Of course, the fact that Greek leaders prefer introducing taxes than losing the clientelistic state tool makes it a whole lot harder to know what's next...

The (potential) effect of capital controls on employment

There's a lot of talk in Greece regarding the impact of capital controls on employment. Since employment data are published with a great lag (and an even greater one over here) one way to gauge their potential impact is through DG ECFIN's leading indicators.

Employment expectations indicators for Industry and Services surely paint a pretty dismal picture.

source: DG ECFIN

One could think that this doesn't carry much weight since it is just an expectations indicator and these are not immune to overreaction or survey participants' judgement errors. It would be informative to see how those indicators predictive powers have fared in the near past. 

I turned DG ECFIN's survey data into quarterly by computing the quarterly averages in order to compare them with actual employment changes. Since constructing an composite employment measure for services would take some time I've just included industry data in the chart but these are more than enough in order to get a sense of things I think.

source: DG ECFIN, Eurostat, own calculations

The employment expectations indicator reacted a bit quick in 2009-2010 but actual employment changes eventually (and sadly) caught up with its "predictions". Of course, there is prior experience of how the said indicator reacts to the imposition of capital controls, in Cyprus.

source: DG ECFIN, Eurostat, own calculations

In Cyprus the said indicator had put in a bottom (as we can see ex-post) before the imposition of capital controls and their effect was a mere blip since the indicator rebounded the next month. Of course, the setting was quite different there, since this was right after election while over here we got elections coming up (yet again) next month. And these prolong, the already sky-high, uncertainty.

To wrap this up, only time will tell what capital controls' actual impact on employment will be. Yet things, ex-ante, are not looking that good. Let's hope that reality will prove these pessimistic omens to be false.

What drove GDP growth in Greece during Q2 2015?

Many people, myself including, were quite surprised by 2nd quarter's Greek GDP print. I think that it would be interesting to take a quick look at the drivers of GDP growth.

source: ELSTAT, own calculations

I deconstructed GDP growth using my usual simplistic method. Per that, the biggest contributor was households' final consumption expenditure. Imports' plummeting was an important driver as well and finally, general government final consumption contributed a bit too. People looking at nominal figures published in budget execution bulletins and being puzzled due to the hefty decreases recorded there should keep in mind that the figures I used here depict volumes. 

What puzzles me is the fact that, unlike during 2014, the increase in household consumption was accompanied by a decrease in imports (essentially the first such occurence since late 2013) which usually means a decrease in household consumption as you can see in the chart. Imports' decrease is probably going to act as a buffer for GDP growth in Q3 as well, where capital controls are going to have quite a fierce negative impact on imports.

Relative reliance of Greek Banks to ECB funding is now higher than what it was in 2012.

It is no secret that the Greek banking system is (once again) heavily reliant in ECB funding. What's less obvious at first glance is that although in absolute terms, its reliance is lower that what it was at the 2012 peak, in relative terms its reliance to CB funding is now, in fact, higher.

source: Bank of Greece

No matter which yardstick one chooses to measure it against (e.g. Total Assets or GDP), the statement above stands.

source: Bank of Greece, own calculations

source: Bank of Greece

Happy times.

Greek Industrial Production and Euro's devaluation effects

I found the “appetite” to do a post after a really long time. What puzzled me these past few months was the rise in Greek manufacturing production the first few months of 2015 (until April at least that is). Of course this seemingly dry issue has some quite important implications on which I’ll touch later in the post.

source: Eurostat

The reason I was puzzled was that SITC (Standard International Trade Classification) data showed industrial exports to be falling in volume and domestic demand is rather anemic to justify such robust increases. Since I use Industrial Production and not Turnover, Volume data have to be used for comparisons and conclusions reached to be meaningful.  SITC data literally refer to volume since they are expressed in kgs. 

I summed up some industrial goods categories (namely, Chemicals and related products, Manufactured goods classified chiefly by material, Machinery and transport equipment and Miscellaneous manufactured articles) to reach the figure shown in the chart below and which I dub “Broadly Defined Industrial Products”. Not very creative, I know. 

source: Eurostat, own calculations

Last night I had an epiphany and checked data from one of the other trade classifications, namely BEC (Broad Economic Categories). Data from BEC justified the robust increases in Industrial Production since they showed solid increases in merchandise exports volume for the months until April.

source: Eurostat

Generally, data from BEC and SITC coincide, more or less, but (besides early 2015) they have showed divergences in a few other occasions featured in the graph. I haven’t come up with an explanation for what drives those divergences, since I am not very fluent in the classifications’ technicalities but implications of the divergence here could stretch beyond a technical issue. They could determine whether Euro’s devaluation in the second half of 2014 actually had a meaningful effect on Greek merchandise exports. Of course, falling Oil prices may have a further deflationary effect on prices (besides domestic deflation In Greece) here and may make apparition of this effect on value terms even harder. Well, we have a hung jury here, BEC data say it kind of did, while SITC data say it didn’t. Of course, one might be excused to think "if the said effect was indeed meaningful wouldn't it show on both datasets?" and I would be inclined to agree there...