Greece growth is not what it seems

Greece’s economy expanded 0.8% in the second quarter, a forecast-busting figure that defied all expectations.

We’ve already seen Greek manufacturing purchasing managers’ index drop to a record low in July, giving a taster of the weakness.

There’s also an ominous signal from the European Commission’s sentiment indicator, which is back at its lowest level in three years.

And even while the Greek gross domestic product number looks good on the surface, all is not what it seems.

According to economists Jamie Murray and David Powell at Bloomberg Intelligence, the “flattering real GDP belies weakness.”

Nominal GDP shrank 0.7% in the quarter, meaning the growth in real GDP was largely due to falling prices.

Greek consumer prices fell an annual 1.3% in July, extending the nation’s deflationary slump.

Analysis of the second quarter is limited because we only get the headline numbers and no breakdown of the output or expenditure components.

There’s also the prospect of future revisions that could completely change the picture.

In the meantime, Murray and Powell offer this: “One possible explanation for the narrative around the numbers is that the threat of capital controls and their subsequent introduction may have prompted some unusual behaviour,” they said.

For Jonathan Loynes at Capital Economics, second-quarter data are not a true capture of what’s going on in Greece.

Or as he put it, they relate “to an entirely different economy than the one currently being strangled by capital controls.”


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