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.

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.