As we review the economic landscape for 2013 we have received an early update on what is happening in the Greek economy. Unfortunately she did not take my advice and default and devalue over the Christmas break so she faces the new year with a by now very familiar set of problems. In essence she is trapped in an economic depression that shows no sign of abating. This will be added to by the extra austerity planned for this year by her government which is being applied to an economy which as of the latest official numbers (3rd quarter of 2012) was shrinking at an annual rate of just under 7%.
What is happening right now?
Manufacturing
This sector has been hard hit by Greece’s economic weakness and the latest purchasing managers index number continues a grim trend sadly.
Greece’s manufacturing sector continued to contract in December, with output falling sharply amid a sustained downturn in new orders.
The headline Markit PMI of 41.4 was slightly worse than November’s and compares to an average of 42 for the third quarter of 2012. So those who thought a bad situation could not get worse were wrong as we move ever further away from the benchmark of 50 which represents unchanged output and conditions.
We also see that this will have an impact on the rest of the economy as we move further into 2013.
Reduced production requirements impacted negatively on employment and purchasing activity over the month, both falling considerably and at rates that were slightly faster than the respective averages for the year.
If we consider that the unemployment rate in Greece was already as high as 26% in September further increases are extremely unwelcome to say the least. Also as we review the fact that new orders in manufacturing have now fallen for 40 months in a row we see that a previously bright area has faded somewhat.
Notably, there was a near-record decrease in the level of new export orders received by manufacturers in Greece.
So over 2012 we have seen prospects for exports weaken and no doubt a contribution to this in the latter part of 2012 was the strength of the Euro as a currency which continued this morning as it nearly touched US $1.33. Prospects will not be helped by the fact that overall the Euro area has a manufacturing sector which had a PMI of 46.1 in December and so it is contracting too.
And just to add to their problems Greek manufacturers are being squeezed between rising import prices and an inability to raise product prices in weak markets. Hopefully the rise in the Euro will help with this as we move forwards in 2013. But for now Greek manufacturing faces something of a combination that Britney Spears correctly described as toxic.
Retail Sales
These may be the worst numbers even the sorry economic tale that is Greece has produced so far.
The retail trade volume index, including automotive fuel, decreased by 18.1% in October 2012 compared with October 2011. The Index in October 2011 recorded a decrease of 10.8% compared with October 2010.
Yes an 18.1% decrease on top of a 10.8% decrease the year before! The underlying index was 66.2 in October compared to a benchmark of 2005 being 100. The weakest sector is clothing and footwear which fell to 46.3 on the same basis. If we look back for some perspective we see that this is the weakest number for retail sales volumes this century and that October is normally a stronger month than September whereas this year showed a 6.9% decline.
Indeed if we compare on a like for like basis i.e October 2000 with October last year we see that retail sales volumes have fallen by just over 23% and we can now be clear than in the Euro era for Greece retail sales have fallen.
And just when you thought that it might be safe to come out of the kitchen Kathimerini is reporting this.
Meanwhile the National Confederation of Hellenic Commerce (ESEE) is still compiling data regarding the period leading up to Christmas, when the drop in turnover ranged between 20 and 50 percent on a yearly basis, depending on location.
Greek banks are still being bailed out
The Bank of Greece reported on this subject at the end of the year and concluded the following.
The resulting capital needs for all banks amounted to €40.5 billion.
Of this amount some 27.5 billion Euros will be the amount necessary to recapitalise Greece’s four biggest banks (National Bank of Greece SA, needs to raise 9.8 billion euros, Piraeus Bank SA needs 7.3 billion euros,Eurobank Ergasias SA needs 5.8 billion euros, and Alpha Bank needs 4.6 billion euros.
By the time the Bank of Greece has added in some capital buffers and other factors its estimate of the costs nicely coincides with the 50 billion Euros put aside for this purpose in the debt haircut of the spring of 2012. Convenient eh?
Meanwhile in the real world the Greek economy has continued to weaken and looks likely to carry on weakening which can only adversely affect her banking sector. I note also that the Bank of Greece hints that it may well agree with this and the emphasis is mine.
The improvement in the capital and the liquidity position of Greek banks will enable them, in the medium term, to perform their core intermediating function and thus to help improve the business environment and put the real economy back into a sustainable path.
So not now then….
At least the stock market is rising
In 2012 the Athens general stock index rose by 33% and this move has continued this morning. The euphoria generated by reports that the US has dealt with its so-called fiscal cliff has seen it rise 2.5% so far today to 931. In my view it would be much more accurate to say that the US has mostly deferred this issue to another day but that is for another post.
Also once the debt haircut (PSI) was behind it the Greek government bond market went on a rally too showing that her financial markets are not currently connected to her real economy.
Comment
So we open 2013 with yet more signs that the Greek economy is in deeper and deeper trouble. Unfortunately this comes from an economy which had already reached a very low ebb. Whilst she is improving her fiscal deficit (down by 40% to 12.58 billion Euros in the year to November) this is coming at a very large cost in terms of her economic output. We get a clue to this by the fact that tax revenue is down 4% in the year up to November in spite of the litany of tax rises.
Also if I was to pick one problem which put Greece into this mess it was an inability to raise taxes particularly on her wealthiest citizens and it would appear from the latest numbers that this is carrying on. From Kathimerini.
the combined total of both old and new debts to the state now stands at 55.5 billion euros…….The new debts, recorded in 2012, amount to 12.07 billion euros and are expected to steadily increase.
If the latest reports are true and Greece is heading into a period of primary surplus then she should default and devalue now.
