ELSTAT updated its early flash estimate for the Greek 2013Q2 GDP with revised detailed data. Since I had analyzed the original release, let’s take a look at what has changed since then:

Table 1

Volume change is now -3,8% compared to the original estimate of -4.6%. This is attributed completely to the nominal GDP growth rate which registered at -6.1%, far less than the original -6.9%. The GDP deflator estimate is unchanged, yet nominal values have been revised upwards which is certainly a positive development.

Table 2

Only the income method is not provided in constant prices so I will focus on this one. Labor compensation is still highly negative at -13.9% (from -14.1% in 2013Q1) and the same happened for Gross Operating Surplus/Mixed Income (-3.5%). What actually increased was… taxes, which increased 5.5% and subsidies 10.3%. So it seems that income of both labor and corporations did not post and positive developments with the slowdown in the nominal change explained by taxes (on production and imports).

Table 4

Gross Value Added decreased with a lower rate, as well as household consumption (and general government). Gross fixed capital formation is still negative (with no significant change) at -11%, although the rate is half that observed till 2012Q2 (when it was over -20%). The positive impact of inventories during the previous two quarters was not repeated in this one.

In the field of net exports, exports (of goods and services) only posted an increase of 0.9%, negating any hope of an ‘export-led recovery’. What actually declined with higher speed was imports, at -11.8%, compared to -7.7% during the previous quarter.

Conclusion

My personal opinion is that households are starting to hit their ‘autonomous consumption’ limits. Although their income is still falling with roughly the same rate, they are not able to adjust their consumption to current income in the same magnitude anymore. Although this will tend to redistribute income and wealth from low income households to corporations and employed persons, it will also slowly put a floor on the current recession. Import contraction and outright deflation will also help (the currently implied inflation rate in household consumption is close to -1%).

On the other hand, autonomous factors (investment, exports, government consumption) do not point to any upcoming demand boom. On the contrary, despite the extreme drop in the ULC-based REER, exports volume growth is mostly negative (2012Q2 – 2013Q1) or just barely positive.

One last thing to note is that, ever since 2012, the adjustment process is happening mainly through labor compensation, rather than corporate profits. Compensation is around -12% to -14% per quarter while GOS has stabilized around -2,5-3,5%. This is a very large and important income redistribution process which will have long-term effects. As long as consumption is the major source of demand (and investment is a function of current and expected consumption), households will eventually become ‘income-constrained’ and unable to increase their consumption in the future.

Greek National Accounts Income Approach Quartely Changes