Saturday, 13 November 2010


So, apparently our latest GDP estimates are in and they look predictably crap.

The 4.5% y-o-y fall in real terms was apparently close to everyone's expectations, except for those of one rather important player - the IMF, who projected a 4% fall up until its review in September. My naive estimate back in August was that we would see GDP fall by 4.6% to 6% y.o.y. by the end of 2010 and so it seems set to be.

UPDATE: An astute reader here in the City has brought two mistakes to my attention. First, there is a major discontinuity in the quarterly data from 2009 to 2010 - the data are not comparable, strictly speaking. So readers must take my analysis (and those of Eurostat and the Greek Government) with a pinch of salt. 

Second, my -6% figure is totally bonkers unless the anarchists do manage to burn Athens to the ground this November. -4.6% sounds a lot more plausible as it implies a quarterly fall of 1.2%, which is the rate at which GDP fell in Q3 2010. This may still be an overly pessimistic view, as even this downturn has to bottom out somewhere. That said, I suspect that unless we've applied some of our usual political 'stimulus' in the run-up to the elections  (at the expense however of revenue targets) then the combination of uncertainty regarding the electoral outcome, plus the effect of civil unrest in November will deliver very close to -4.5% by the end of this year, at least some revisions down the line when the GDP estimates have hardened a little.

Many thanks to reader NoC for these clarifications - saved me from getting caught out by less sympathetic readers.

Finally, we would both add that readers must be very careful as the revisions between the Q2 2010 and Q3 2010 releases are vast. Generally their effect is to start the decline in GDP much earlier, which affects the yoy figures. It is my belief that these are not aimed at addressing the discontinuity ELSTAT have highlighted - that, when it comes, will be a one-off, big-ticket revision. Cynics might call this manipulation but actually it is very likely to have been made in good faith.

Unsurprisingly, the IMF's target of 11.2% unemployment is also not on track to be met. In fact, the latest estimates were 11.8% for Q2 and even 11.7% in Q1 2010. Not that forecasting unemployment means anything in Greece since our labour market is unable to match labour to vacancies.

In addition to the fact that we still can't bring tax revenues in, the IMF may wish to note that another, far more important source of taxation is failing: inflation. The GDP deflator is now growing at 2.4% y-o-y, against an IMF estimate of 3.5%. This is despite CPI inflation estimated at 5.2% against an end-of-year target of 4.2%. My national accounts voodoo handbook tells me that this means that rising commodity prices and continued distortions in the market have kept input prices, profits and rents rising fast even as demand kept value added inflation subdued. This is the worst of both worlds - consumers are being taxed via inflation but the state is only able to use a small amount of this 'tax' to 'pay' down debt.

Isn't it time the IMF saw this for what it is? It's a death spiral.

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