28th May 2012
As the crisis in the Euro area continues to spread and develop it is easy to forget the economic destruction that has been inflicted in Greece where the first signs of the current problems emerged. That is of course unless you live there! Politics is not my area so today I wish to look at the economics. If we look back we see a crisis which began with government overspending which the past New Democracy government hid and which the more recent Pasok government tried but failed to deal with the consequences of. This led to a call for international rescue the mishandling of which saw Greece's economy spiral downwards. In short economic contraction led to austerity which led to further economic contraction and repeat. So far there is no sight of an end to this madness.
How is Greece's economy doing?
According to the official statistics her economy shrank at an annual rate of 6.2% in the first quarter of 2012. To give an idea of the incompetence of the "rescue" effort the original "shock and awe" plan forecast 1.2% growth for Greece in 2012. If we look at industrial production we see that as of March it was falling at a year on year rate of 8.5% with the underlying index where 2005=100 being at 72.6. The volume index for retail sales looked even grimmer when it was shown to be falling at an annual rate of 13% in February with an underlying index of 79.2 where 2005=100. The only area of hope has been exports which have risen although sadly the rate of increase slowed to 10% in March. Indeed inspite of a collapse in import levels and genuine export growth and Greece still ran a trade deficit of just over 2 billion Euros in March which is pretty much what she exported. It is often ignored but another way of analysing her problems would be to start with her trade deficit.
If we move from official data to survey data to bring ourselves as up to date as possible we have seen that Greece's manufacturing sector fell even further into contraction in April as her Purchasing Manager's Index fell to 40.7 where 50 represents unchanged. Even worse there seems to be a complete lack of trade and credit finance inspite of all the various bank bailouts which only seem to have supported banks which have metamorphosed into Zombies. Perhaps the horror film The Day of the Living Dead represents them best as they soak up another 19 billion Euros. Or as Kathimerini puts it:
"Loans to households and enterprises have fallen by about 11 billion euros in the last two years."
And her Financial Markets?
Both Greece's stock market and its bond market have collapsed. That is not too strong a word for a stock market which on Euro entry was over 6000 and is now at 500 as represented by the Athens General Index. And her government bond market has fallen even further since her debt haircut with her ten-year bond yield being just under 30%. So investors and pension funds must have taken quite a caning overall and any wealth effects on her economy must be strongly negative.
It never rains but it pours
I guess all readers are familiar with the fact that luck very rarely appears when you most need it and in fact it seems to operate in an inversion fashion to need. Take a look at this from the Financial Times:
"The price of premium-quality extra virgin olive oil in the wholesale market fell this month to $2,900 a tonne, the lowest since 2002 and down more than half from nearly $6,000 a tonne in 2005, according to the International Monetary Fund."
I guess you are already waiting for the next bit:
"Spain, Italy and Greece are by far the largest producers of the commodity, accounting for 70 per cent of the world's olive oil output."
A familiar list is it not? The cause has been reduced demand in those three countries (particularly Italy and Greece) due to their economic difficulties and a bumper crop in Spain. And if you add in the exchange rate it is even worse because in 2002 the Euro and US Dollar were approximately at parity but now if we take US $1.25 per Euro we see that US $2900 bought 2900 Euros then but only 2320 now. Ouch.
I wonder whether Spain now thinks it was a good idea to encourage and subsidise olive oil production. Oh what a tangled web we weave and all that!
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