Back on the 21st of January I reviewed the economic position in Greece and even the word grim failed to do it justice. One of the issues covered was the fact that the International Monetary Fund’s view had mostly caught up with mine on Greece’s economy.
It is now projected to contract by 6 percent this year (2012) and 4¼ percent in 2013
However as I pointed out then the IMF has changed its tune and needs to answer why it was wrong before. After all observers like myself could see that policy was being set on wildly optimistic scenarios. This matters because the end result has been this.
Overall, the cumulative output decline has now reached about 19½ percent (including the impact of recently announced GDP revisions, which shaved over 1½ percent off reported growth in 2010–11).
Remember the official forecasts which continually predicted that recovery was just around the corner.Well I am afraid that the current state of the Greek economy reflects the consequences of setting policy on fantasies rather than reality. It did not have to be this way. At 10:30 am today the Bank of England faces a similar problem in concept where in its Inflation Report it will have to admit to being wrong yet again. To save you viewing a tedious press conference here is my summary. “Inflation higher,growth lower (yet again), but it’s someone else’s fault!”.
Underneath all this is the obvious issue that things would be better if these official bodies got a grip on reality rather than paraded their economic fantasies as forecasts. In the UK we have had problems due to higher inflation but they are much more minor than the economic catastrophe which has been inflicted on an increasingly poor Greece.
What is the latest data?
I am afraid that these are the sort of numbers which make me ask you to sit down before reading this. The numbers are for November 2012.
This figure corresponds to 197.0 thousand m2 of surface and 706.9 cubed of volume, reflecting respectively a 66.6% decrease in the number of building permits, a 63.3% decrease in surface and a 65.4% decrease in volume, compared to the same month of 2011.
We know that these numbers have been declining for quite some time so it would be reasonable to expect some sort of turn for the better or a slow down. But no as the averages for the three percentages above in the year to November were 37.1%,34% and 32.1%. It may be hard to believe with the declines that already have taken place but the deterioration has accelerated in November.
Remember that economic recoveries often begin in the housing/construction sector. If you looked at these in isolation you would be thinking that an acceleration downwards was now on the cards.
These have been a beacon of light in the gloom for Greece but this week’s update shows a possible problem in this sector too.
The total value of exports-dispatches, excluding oil products, in December 2012 amounted to 1319,7 million euros against 1523,9 million euros in December 2011, recording a drop of 13,4%.
As ever a fair degree of caution is required with monthly trade statistics but it is quite a different number to the increase of 5.1% to the numbers for 2012 overall. Even it is a drop on the around 10% increases of 2010 and 2011. So a slowing appears to be happening and with the recent Euro strength it would not be a surprise if that continued. Indeed exports outside the European Union look as if they were already being affected by it in December as they fell by 20% on the smae month a year before.
Unlike Spain and to a lesser extent Portugal the gains in Greece have left her a long way away from the old IMF objective of eliminating trade deficits. Imports in 2012 were 32.1 billion Euros and exports were 16.2 billion Euros.
Again we have a series which has fallen heavily so you might think that the scope for further falls is relatively limited. Unfortunately not.
The retail trade volume index, including automotive fuel, decreased by 16.8% in November 2012 compared with November 2011
If we look at the underlying index we see a level of 64.9 compared to a 2005 benchmark of 100. You will not be surprised to learn that it is the lowest reading in this crisis for this series.
Here we find a number which may at least be showing signs of a slowing decline.
The Production Index in Industry (IPI) in December 2012 compared with December 2011 recorded a decline of 0.5%.
It was however down 2% on November’s values and an underlying index of 71.2 where 2005 is benchmarked at 100 shows how weak this series currently is. A little bit of hope can be found in the manufacturing numbers which rose by 2% on the year before in December.
Full scale deflation?
Whilst Greece has had plenty of deflation in terms of aggregate demand she has had inflation with it as for example the indirect tax rises have pushed consumer inflation upwards. If January is any guide that looks now over.
The CPI in January 2013 compared with December 2012 decreased by 1.4%. In January 2012, the monthly rate of change of the CPI was -0.8%
If we look at the annual rate of change of inflation it has fallen from above 5% in January 2011 to 0.2% in January 2013 and looks set to go negative. Perhaps not in February’s figures as they were very weak last year and we currently have a firm oil price but March looks a possibility.
Interest and mortgage rates are rising
Having spotted this issue in Spain and being slightly surprised after all the European Central Bank’s efforts in this area I now look out for it. Here is the view of the Bank of Greece.
Finally, the average interest rate on housing loans at a floating rate or with an initial fixation period of up to one year further increased by 10 basis points to 3.04%.
This is a series I intend to look into more as “further increased” caught my eye. Indeed this seems to be happening to corporate borrowing too.
In December 2012, the average interest rate on all new loans to households and corporations increased by 13 basis points to 5.76%.
This provokes quite a few thoughts. For example in an era of ZIRP (Zero Interest Rate Policy) which the ECB represents with an official interest rate of 0.75% how do we get to a number some 5% higher? We seem to be back in the world of George Orwell’s some animals are more equal than others are we not? There was ZIRP for the Greek banks last year as they hoovered up money at 0.75% for three years but the Greek borrower seems to be paying what for these times looks like through the nose. Yes as so often we appear to have spotted that the banks are more equal in Orwell’s terms than everyone else. Or to put it another way.
In December 2012, the overall average interest rate on all deposits (including overnight deposits) stood at 2.87% and the one on loans at 5.81%.
Nice work if you can get it!
The Greek fiscal deficit
On the face of it this series looks good as we see this.
the State Budget surplus amounted to 159 million Euros
This looks hopeful on its own, if nothing else for the use of the word surplus! But if we look deeper we see something which is yet again ominous for Greece.
State Budget net revenues amounted to 4,418 million Euros, showing a 9.3% decrease against January 2012
If we factor in all the rises in tax rates into this we see that any like for like basis would be considerably worse than this. So we have yet another picture of a weakening economy which will be given another push downwards by this.
State Budget expenditures were reduced compared to January 2012 by 1,103 million Euros or by 20.6%.
It will not be the first time that claimed success hides a deeper failure.
As I survey the data it is the interest and mortgage rate numbers which are very important here. Not because I think that they are more important than economic growth or employment. But because they expose something of a lie in both economic theory and practice. It returns me to theme with which I started this blog over three years ago of official and unofficial interest rates. It is clear now that the low official ones apply to the banks, financial sector and savers and (often much) higher unofficial ones apply to the rest of us.
I observed this first in the UK and more recently in Spain and as you can see it is evident in Greece too. The future has many uncertainties but I do know that this is a bad development and no good will come from this backdoor recapitalisation of banking sectors.