Greek Investment Components

The return of economic growth in the Greek economy appears to have a positive impact on fixed investment. Given the opportunity it is interesting to take a closer look on fixed investment components since before the Greek Great Depression (GGD).

I ‘ve grouped Fixed investment into two major categories: (Private) Dwelings + Transport Equipment (Ships etc) and Other Investment. Greece experienced a housing boom in the early Euro years while the ship balance exploded after 2004 from roughly balanced to €5.4bn in 2007. While both series increased steadily during the 1995-2005 decade, dwelings + transport equipment surged almost €13bn in a very short time period.

Moreover, while Other Investment stabilized at around €15bn annually after 2012 and has since touched €20bn, the former category dropped to only €5bn per years, a loss of €33bn in a matter of years.

New building permits suggest that this drop is permanent with 2018 permits being 15% of 2007 figures. Decreasing population, stressed bank balance sheets and low household incomes are all factors pointing towards the same direction with only demand for AirBnB apartments being suggestive of positive prospects.

Assuming an accelerator model for fixed (other) investment we can examine Other Investment as a percentage of consumption and exports (total demand) to determine if there is scope for improvement:

Other Investment hovered between 8-10% of total demand in the period before the GGD with a relentless fall to 6.5% until 2012Q2 probably due to animal spirits and lack of access to credit. It now moves between 8-9% suggesting small room for further improvement.

In my view, the above indicate that Greek fixed investment will not return to pre-crisis levels any time soon and projections of 20% GDP investment are quite optimistic and probably overstated. The share of GDP will most likely stabilize around 15% of GDP with dwelings construction being permanently lower.

Given that the external balance is the difference between domestic savings and investment and that the Greek government is destined for semi-permanent primary surpluses of 2-3.5% GDP, my view is that the (Greek) «structural» current account deficit is now quite low. Greek households have already dis-saved almost €40bn while the Greek banking system will not be in a position to provide ample amounts of credit any time soon.

On the other hand, anemic dwelings investment, stable other investment and large Greek government primary surpluses indicate the absence of factors for a large boom in the Greek economy. Demand drivers will include the steady increase in employment (and consumption), external demand and «autonomous» investment mostly in the form of FDI. I am not sure how Greek growth can become impressive any time soon.