Wednesday, 24 November 2021

Dissecting Greek Manufacturing's surprisingly robust performance during the Pandemic.

Greece, as is widely known, is anything but a manufacturing powerhouse. In fact, it ranks 4th to last among its EU peers when it comes to the share of manufacturing in total gross value added. Despite that indisputable fact though the country's manufacturing sector made a surprisingly (given its track record) decent showing thus far into the Pandemic. But which sub-sectors have done well? Is it domestic or foreign demand that's doing the heavy lifting? This post will try to answer the aforementioned questions by administering its usual excessive dosage of charts.

First of all, just to get this out of the way, here is the ranking of EU countries according to Manufacturing's relative share of the total gross value added produced in the economy. Data for 2019 are used so that the said ranking won't be influenced by the Pandemic's effects (actually manufacturing's share in Greece notched up to 10,2% in 2020).

source: Eurostat
And here, without further ado, is how each EU country's manufacturing sector has fared thus far into the Pandemic. To gauge that, the volume of production index's 12-month MA was computed and 2020M01's level was set as the base.

source: Eurostat, own calculations

As you can see, for the time being, Greece sits in 5th place (although it would probably be pushed down to 6th if Ireland - given how pharma-heavy the sector there is - released s.a. manufacturing production data as well).

Moving on to how each individual sub-sector has done, the same calculation as above was repeated on a sectoral basis this time and the results can be found in the following chart. 

source: Eurostat, own calculations

The fact that Pharmaceuticals are topping the ranking comes is not surprising and the same could probably be said about Tobacco Products as well but Motor Vehicles, Transport Equipment and Electronics doing that good sure qualifies as such.

On the other end of the list, the fact that leather products and wearing apparel didn't do well was only to be expected but seeing that both Food Products and Oil Products (i.e. Greek manufacturing's largest sectors) not only didn't contribute in that stellar performance but subtracted from it (even if slightly), makes the said performance even more of an impressive feat.

Something else that's worth pointing out is that in Greece's case, 16 of the 24 manufacturing sub-sectors grew during the period in question while for the Euro Area as a whole the same figure only amounts to 8.

source: Eurostat, own calculations

Another question worth asking is where did that demand come from? Was its source domestic or foreign?

Unfortunately the Volume Index of Production for Manufacturing doesn't provide such a breakdown. But, the Turnover Index for Manufacturing on the other hand, does. Kind of. The only problem is that this particular index, unlike the Production one, is in nominal terms.

In general, I'm not a big fan of deflating economic data on a DIY basis. But in this particular case I'll give it a go while stressing at the same time that this solution is far from perfect and that someone might find it wanting. Anyway, here we go. 

Since the Producer Price Index for Manufacturing is not seasonally adjusted the same index configuration for Manufacturing Turnover was used. The formula used in order to deflate the Turnover Index was: (Index of Turnover / Producer Price Index)*100.

Furthermore, the unit of measure picked for all series was (index, 2015 = 100) and the 12-month MA for all series was calculated and subsequently re-based to 2020M01 = 100.

As it turns out from our little exercise, Exports did significantly better than the Domestic Market but if one takes into account the fact that Greece's manufacturing sector is not the most export-oriented this doesn't necessarily translate into a bigger contribution in absolute terms. Unfortunately Eurostat doesn't provide the individual weights for each sector or market in the Turnover index (at least as far as I know) so I cannot provide any concrete numbers on that.

source: Eurostat, own calculations

It's time to wrap this one up. Hopefully you got till the end and weren't put off by all those charts and my blabbing. Greece's long-suffering manufacturing sector has managed to put on a fight during the Pandemic and not only stand its ground but even managing to finish in the top-5 among its EU peers when it comes to growth. What's more, foreign demand for the sector's produce grew way faster than the domestic one. Hopefully, the sector will manage to build on that and repeat something even remotely similar when the Pandemic is finally over, grow its relative share in the economy and set itself on a sustainable footing.

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