What will 2013 bring Greece? Worryingly her economy is still getting worse

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?


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.


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.


This entry was posted in Banking Reform, Euro zone Crisis, Eurozone, Greek Financial Crisis, Yield and tagged , , . Bookmark the permalink.
Subscribe Find an Adviser
  • Anonymous

    Shaun – a very happy new year to you. Another excellent view of a deepening problem. You mention the lack of tax being collected and I feel (as you) that this must be addressed rapidly. Whatever happened to the pursuit of the 2,000 names on the “Lagarde List”? Is no-one doing anything to rectify this? I cannot believe there is a lack of manpower to deal with this ugly sore….

  • James

    Happy New Year (to you if not for Greece). The litany of issues here is breathtaking, but the one that caught my eye (and which I had to reread several times!!) is that retail sales are now lower than when Greece entered the Euro. I know that retail is not everything in an economy, but you do have to ask yourself what exactly has been the benefit for Greece of being in the Euro. After all, being in the Euro:
    1. Has NOT improved its fiscal position;
    2. Has not led to any form of growth;
    3. Has lost Greece’s ability to devalue.
    I do wonder who exactly (apart from the obvious, the rich Greeks buying up London from a non-devalued currency) has benefited…

  • pavlaki

    The Euro has been a disaster for Greece however the Greeks have been brainwashed into believing that leaving the Euro would be worse than staying the course. The suffering of the average Greek is terrible. Those who have sufficient income are just and only just making ends meet. There are many who are not and are living off friends, family and hand outs. It is hard to believe that this is Europe in the 21st century – and the Euro continues to strengthen!

  • Rods

    Hi Shaun,

    I can see no sign of this situation in Greece improving anytime soon. With Merkel determined to make sure Greece does not default and exit the Euro before the German elections in September, so German tax payers suffer no losses. I can’t see any improvements, unless the Greeks take the situation into their own hands and then it will be controlled by events, dear boy, events.

    I wonder like Spain how much the black market has expanded and also how many of the unemployed still have ancestral village small holdings so they have now had to revert back to working the land or where it was a supplementary income before it is now their main income?

    With a lack of will to go after wealthy individuals that potentially owe tax. Is this due to lack of staff or orders from above, where many I’m sure have various links with politicians. The further east you travel in Europe so the more businesses and politicians seem to look after each other in an unofficial patronage system! This is not unlike England in the middle ages where it was much easier to get on in life personally or through business if you had royal or nobility patronage or today’s crony capitalism, which seems to be getting worse in the UK.

  • JW

    Hi Rods
    I think you should add ‘and south’ after ‘east’. However it is increasingly happening everywhere. Capital has won the battle over labour. Nearly all the ‘funny money’ created after 2007 has gone to the financial sector to prop up asset prices to stop banks and non-banking financial institutions from collapsing. Disposable income for the majority dependent on wages/savings has deteriorated.

    Even Obama’s dubious ‘cliff-edge deal had more of the same. The increases in taxes for the ‘over $450k’ was more than compensated by billions of new corporate tax breaks built into the deal, like the extension of tax breaks for overseas subsidiaries.

    Turning the ‘economic ownership clock’ back a century or more is exactly what is going on.

  • james

    These are good points and you see it everywhere. I am a pretty committed capitalist as the best means of creating wealth, but:
    1. The city is just obscene now. it has nothing to do with raising capital for companies to build businesses. it has everything to do with personal gain based on trading.
    2. The preservation of the banks at all costs, whereas there is “no money” for anything else seems perverse
    3. Capitalism isn’t creating wealth for most people. somehow, globalisation has meant sucking all the rewards into the hands of the few, however undeserved.

  • James

    Completely off topic, I know, Shaun, but I really think that you should have a competition for your “hero for 2012″. In a stiff field, my vote goes to Hector Sants.
    A man who:
    1. Missed the entire banking crisis while at the FSA
    2. Continued to make millions out of his LTIP from his investment bank while at the FSA
    Rose above all of this in 2012 to pick up:
    1. A knighthood and
    2. A £3 million a year job at Barclays.
    Can anybody beat this combination of utter incompetence with ridiculous reward (Fred the shred comes close, I suppose)?

  • JW

    Hi James

    Even where capital has been raised for companies or ‘real things’ increasingly this has been in support of heavily subsidized ( by the tax payer) industries. Such as just about anything to do with the so-called ‘green economy’ which is used to label grossly subsidized developments that will help ‘save the planet’, such as completely useless windpower.

    I also believe that capitalism is the best worst option, but we don’t have capitalism anymore, we have something more like a hybrid fascist corporatism with a mix of socialism to keep the unwashed ‘happy’.

  • Anonymous

    Hi Ray,
    One politician has been sacked for removing names off the Lagarde list, but bringing accountability to the Greek nome klatura needs a major cultural change

  • Anonymous

    Hi JW
    I’d blame nepotism not capital. Cronyism exists equally in UK – Mandelson’s house that cannot be bought on declared income for example. As our govt becomes less accountable- we all become poorer

  • Anonymous

    Hi James and Happy New Year to you too.
    The numbers have recently been revised back to 2000 on a 2005 basis and as I scrolled backwards in time the present situation just looked worse and worse. Before I had to adjust several different bases to think that we were back in the late 90s so to speak but this time I fear we have stepped back in time even further.

  • Anonymous

    Hi Pavlaki
    I can only agree completely with your description of the situation in Greece. It is a scandal I think that it has been allowed to happen.

  • Anonymous

    Hi Ray
    I see ExpatInBG has already replied but Happy New Year to you too.

  • Anonymous

    Hi James

    This time I got a very prompt reply from my MP.

    “Dear Shaun

    Thanks for your email.

    The Honours List always produces some raised eyebrows and I imagine there were
    others who were a bit surprised by this one too but it is not a Government
    decision as far as I am aware. We will double check but I am fairly sure there
    is an Honours Committee independent of Government who deal with recommendations
    from a range of sources.

    I will come back to you with clarification on the process and register your
    protest with an appropriate Minister.

    Best wishes
    So apparently it is nothing to do with anyone or democracy either…

  • Anonymous

    Who is advocating a different route in Greece? The far right (of the worse kind, pure nazism) and the far left (of the populist kind that will create a ‘progressive’ new currency and will give the money back to the people, hyperinflation and catastrophe guaranteed; in my opinion very dangerous people). An accident can happen (I don’t deny the possibility) but there is no reliable political force to take things in its hands and negotiate a reasonable exit agreement with a reasonable economic plan for the day after. Plus all geopolitical and security reasons that have always been more important than economics in SE Europe. So, it won’t happen so easily. It will be hard negotiations but within Euro, probably a very big haircut after the German elections.

  • DaveS

    Yes, I feel the risks of an exit are high – I think Drachma hyper-inflation is likely with the far right waiting in the wings if there is social unrest.

    Same argument applies for Portugal, Spain etc etc.

    Clearly the Euro is a failed construct, but that doesn’t mean exiting the Euro is the solution. I’m afraid the Greeks might be better off with the devil they know – as bad as things might be now, they can get worse.

  • pavlaki

    Do you not think that the risk of social unrest and the far right is greater if Greece remains in the Euro? I fail to see the benefits of staying with a failed currency union. The threat of ‘things will be worse’ is exactly what is being pushed by the ECB and Euro zone leaders for their own ends. If I could see any way at all that Greece could improve whilst staying with the Euro then I would support this – but I can’t. I can however see a future for Greece where labour costs are very low due to a devalued Drachma and with enlightened government policies (difficult to anticipate I know!) then Greece could be a low cost manufacturing base on Europe’s doorstep. Certainly the Greeks would have to do without luxury imports and older cars but then they have coped with that in the 70′s and 80′s so nothing new there. Tourism would have a massive boom and this has a huge knock on effect in employment and the general economy well beyond what the basic numbers would indicate. It would be very painful for sure, but I’m not sure it would be any worse than continuing as they are now – and at least there would be hope. And that’s what is currently missing.

  • Anonymous

    I repeat, this analysis might make sense (I agree) but currently there is no political entity in Greece to advocate a plan like this. Syriza promises a return to the populist PASOK years (nothing like what you describe) of more public employees, public overspending and nationalisations (yes I kid you not) and the extreme right… (let’s not go there). So, there is no alternative route for the moment at least. I see no change until the German elections. Then, I big haircut of the official sector to make the debt sustainable so that Greece continues to be in the Euro.

  • DaveS

    I think its unlikely Greece will transform itself to a low cost manufacturing exporter.

    I know its the perceived wisdom that you can devalue and rebalance to manufacturing. I don’t think in a globalised world this will work for a mature western economy. The labour costs would have to drop to levels that would likely provoke social anarchy.

    Also there are plenty of low cost competitors on Europe’s doorstep (e.g. Turkey, Poland etc) that I think would be much more attractive for the limited capital available.

    Why isn’t rebalancing working for the UK ? We are supposedly still a major manufacturing nation (unlike Greece).

    Of course with the right leadership it might just be possible but then when did Greece last have that ? I feel its clutching at straws. Its much more likely a socialist government would ramp up public spending, monetise the deficits and result would be hyper-inflation.

    (Tourism might benefit, but not if Germans and Austrians continue to avoid Greece- this is happening now, I can’t see it would improve after an exit).

    Default and devalue is theoretically the solution, but I think the mistake is to assume that there must be a solution – that we in the West must be entitled to wealthy lifestyles and that drops in our living standards can be avoided. I think it may be too late for that.

  • Pavlaki

    I would agree with everything you say but for the fact that staying with the Euro looks worse than the alternative. The idea of enlightened government in Greece is stretching credibility I know but what is the alternative. It frightens me to think that what we have now could just go on and in all probability get worse. I’m not sure the population will accept that.