The Greek Statistics Agency recently released detailed figures on the 2014Q2 GDP developments. It is rather evident that GDP in volume terms is close to returning to positive growth figures although deflation is still hovering around -2.5%. Looking into the expenditure breakdown leads to a couple of conclusions:
Consumption expenditure has already stabilized around zero during the first half of 2014, a significant improvement from the almost double-digit drop of 2012. This stabilization is visible in both government and private consumption with fiscal consolidation being a much lesser drag on the economy during the last few quarters. The rather obvious question though is how sustainable can this improvement be given the current high unemployment rates and decreasing disposable incomes for most of the population. According to Ameco both aggregate disposable income and nominal compensation per employee is destined to fall by around 2.5% during 2014. Consequently, current improvements in private consumption might just be the result of postponed (durable goods) expenditures with a mostly one-off effect.
Fixed capital formation also shows significant signs of stabilization. Compared to -15% in 2013Q4, 2014Q2 figures came at only -0.8%. Exports and imports of goods and services were quite positive although the net result was almost negative during the second quarter with net exports contributing only €76mn in real terms.
Looking in the detailed accounts for capital formation and trade in goods and services can help reach some important conclusions:
Dwellings construction continues to show extremely high losses. Capital formation was improved mainly by transport equipment (which increased 25% during the first half of the year), machinery as well as ‘Other Construction’. The large swing in machinery investment is very good news while ‘Other Construction’ is probably related to the restart of major road developments in parts of Greece. Nevertheless, in volume terms the largest contribution came from ‘Transport Equipment’ with an increase of over €250mn in every quarter of 2014. It is most probably due to the large increase in ship acquisitions during 2014H1 with a significant increase in imports (ship imports were almost €1.1bn higher according to BoG) with a rather low net contribution to GDP.
In the trade front, the improvement in exports is accounted for mainly by services with exports of goods actually registering negative performance during Q2. Considering the large increase in imports of both goods and services the overall impact on GDP is rather low and down to €100-200mn per quarter (compared to over €1bn/quarter during the previous years).
Overall, it looks like the Greek economy is on its way to achieving positive growth rates in the coming quarters. Still, dwellings will be a drag on capital formation while both investment and consumption seems to be targeted mainly on imported goods which negates the improvements in services exports. Moreover, goods exports still show large weakness and inability to translate the significant drops in ULCs to increased sales volumes abroad. Given that the banking sector is still quite fragile and not eager to provide credit and the state of most household balance sheets, the recovery will most probably be weak and not allow any noticeable improvement in employment and compensation.
Thus, a scenario of a low growth trap for the Greek economy is quite probable given the above dynamics. This has already been outlined by the IMF in a series of papers on the periphery current account positions ( and )