I ‘ve focused on the inflation issue in my last posts so I ‘d like to make yet another simple accounting exercise concerning Greek imports.

The Imports to GDP ratio can be broken down to:

Real Imports / Real GDP = (Nominal Imports / Imports Deflator) / (Nominal GDP / GDP Deflator)

or: (Nominal Imports / Nominal GDP) = (Real Imports / Real GDP) * (Imports Deflator / GDP Deflator)

As a result, the change in the ratio can be broken into volume (import penetration) changes and price changes (when imports prices rise faster than the GDP deflator). Focusing on imports of goods, I ‘ve done the corresponding calculation for Greece:

Greece Import Penetration

The period numbers are sums and not averages. The 1993 – 1999 period shows large import penetration which is nevertheless counteracted by price effects. The 2000 – 2008 period is dominated by certain years such as 2000 and 2006/2007 when import penetration was quite high. Price effects are much lower in the 2001 – 2008 period (because of the Euro) though still negative. Any unsustainable trends are limited mostly during 2006 – 2007. A further exercise would be to check the correlation with the large credit expansion during that period.