Greek GDP Still Shrinking

The latest economic data out of Greece spell more trouble for the country. The Greek news site Ekathimerini reports:

Greece’s economy shrank by 4.6 percent of gross domestic product in the second quarter of 2013, the Hellenic Statistical Authority (ELSTAT) said on Monday. This was the 20th consecutive quarter of negative growth for Greece. The economy had contracted by 5.6 percent in the first quarter.

Technically this means that economic activity grew in the second quarter. But all that is needed for an upswing is increased tourism during the summer season. There is nothing wrong with that, especially in a country like Greece where tourism is a big industry. But it is very difficult for a country to pull itself out of a deep recession – or on this case a depression – by relying on foreign visitors. There has to be domestic economic activity as well; as a sign of how unlikely that is to happen, the Greek statistics agency ELSTAT reports that construction has fallen by 50 percent – in one year.

More likely, the depression of the Greek economy will continue. A major reason is that the government is still using austerity measures to try to close the budget gap. As always, the immediate result of new austerity is indeed an improved budget balance, which Ekathimerini reports that Greece is enjoying right now:

Earlier, there was more encouraging news for the government on the fiscal front. Alternate Finance Minister Christos Staikouras said Greece’s central government achieved a primary budget surplus of 2.6 billion euros, or 1.4 percent of GDP, in the first seven months of 2013 against a target for a primary deficit of 3.1 billion euros, The reading for January to July excludes interest payments and the budgets of local government and social security funds.

In other words, it is a statistically convenient figure to present. It is a safe bet that the social security funds are running big deficits. If they are, there is yet more trouble coming down the pike for Greek taxpayers.

As a hint of that, enjoy this little story from Euractiv:

German opposition parties accused Chancellor Angela Merkel yesterday (11 August) of lying before elections next month about the risks of a new bailout for Greece, after a magazine reported the Bundesbank expects it will need more European aid in early 2014. Der Spiegel quoted an internal document prepared by the German central bank as saying that Europe “will certainly agree a new aid programme for Greece” by early next year at the latest.

How about that! Another truck load of taxpayers’ money dipped into the black hole known as the Greek welfare state.

This means two things. First, Bundesbank already has the architecture in place for another effort to plug the hole in the Titanic with chewing gum. Secondly, knowing as they do what is happening behind the scenes in the Greek economy, the Bundesbank is convinced that the trend from the last few years will continue on a steady downward trajectory. Any attempt by some media to spin today’s GDP and budget numbers in a positive direction will fall flat to the ground.

We have never before witnessed a modern, industrialized economy in macroeconomic free-fall like the situation Greece is in today. This makes it very difficult to predict when this process will end, and how. But we do know one thing: so long as Brussels forces the Greek government to continue with destructive austerity policies, there will always be enough fuel for yet another round of GDP contraction.