Greece's still-falling GDP dispels creditors' "recovery" myth

The latest GDP figures for Greece, relating to Q4 of 2016, are disastrous. For Greece first and foremost, but also for the credibility of the EU and IMF's failed harsh austerity (but on the EU side no-debt-cancellation) policy.  Far from evidencing the long-promised recovery, they show a new decline in GDP – both on the previous quarter (after seasonal adjustment) and year on year.

In fact, the economy has been broadly stagnant at a low level since 2013. In constant volume terms, GDP fell by over 27% from (peak) Q2 2007 to Q4 2013, and in Q4 2016 it was 0.3% smaller than in Q4 2013.  In Q4 it was only marginally higher than the post-crisis record low to date, Q3 2015.

This chart from Elstat (the Greek Statistical Office) shows the development of GDP over the last decade: 

Chart from Elstat

What is more extraordinary is that current price (i.e. nominal) GDP has fallen even further than real GDP over the decade – by 28.5%   From 2008 to 2016, GDP fell quarter-on-quarter in no fewer than 27 out of 36 quarters, of which two in 2016.  

Looking at the elements of GDP, we see that  nominal consumption expenditure in Q4 was almost identical to the year before, with household consumption up a fraction, and government “consumption” down by about the same.  The significant fall was in GFCF – capital investment – down 18%. Net trade improved slightly on Q4 2015 as exports increased more than imports – but exports were lower than in Q4 2014, so there has been no big turnaround in trade.

Turning to income, there has been scarcely any movements over the last two years in Q4.  The  figure for compensation of employees is almost identical to that of 2015 and 2014, meaning that the small increase in employment is offset by lower wages.  The gross operating surplus / mixed income figure is similar to Q4 2014, but a little higher than 2015.

The general picture of stagnation at a level far, far away from a positive equilibrium is emphasized when we look at the employment and unemployment statistics, also via Elstat:

Chart via Elstat

Thus there has been some modest improvement, with unemployment in November 2016 about 66,000 lower than a year before, and employment up by about 50,000.  But employment is still 200,000 below its 2011 level.  The unemployment rate remains a disastrous 23%, which reminds one of chronic European levels in the 1920s and 1930s:

Via NBER, Galenson and Zellner, 1957

Via NBER, Galenson and Zellner, 1957

The Financial Times' Mehreen Khan yesterday (6 March) described the current state of negotiations towards the absurd requirement of a contractionary 3.5% of GDP budget surplus (i.e. after interest):

"Progress on the country’s €86bn rescue deal has stuttered this year following a standoff between the EU and IMF over the level of austerity, reforms and debt relief baked into Greece’s three-year programme. Bailout monitors however returned to Athens last week to ensure the left-wing Greek government was making steps towards legislating for around €2bn in tax and pension measures that will help the country meet a surplus target of 3.5 per cent of GDP from 2018. Approval of the second review would unlock around €6bn in rescue cash for the economy."

And ah yes, as Jeroen Dijsselbloem, Chair of the Eurogroup finance ministers, put it on 20th February, in an interview with CNBC (h/t Professor Helen Thompson ):

“…anyone who wants to talk about crisis can talk to someone else because the Greek economy is gradually recovering and what we need to do is to strengthen that and give that more opportunity and that is what I'm trying to do."

Alas, Mr Dijsselbloem comes from the Dutch Labour Party, not the conservatives, and here symbolizes all that is so profoundly wrong with the Eurozone’s economic policy and ideology.  It’s high time he looked again at that table of unemployment in the 1930s – and the terrible ordeal imposed on the Dutch working class.