Home Greek News Financial Times: Greece’s economy is resurgent but still fragile

Financial Times: Greece’s economy is resurgent but still fragile

by _
0 comment 133 views

Turning point for Greece: a woman takes a selfie as people sit outside a store in Ermou Street, Athens’ main shopping area © AP


Greece’s economy is resurgent but still fragile

The reforms made during its crisis failed to address competitiveness issues


Describing the Greek economy these days as a phoenix ascendant from the ashes of crisis is, given the country involved, an apt metaphor. Yet it may be too early to mythologise the Greek economy. Fast money has done well investing in Greece, but the stickier long-term investors that Greece so desperately needs remain sceptical.

So-called hot money, investment in financial assets that moves quickly as traders look for short-term returns, has returned. These investors try to find inflection points to buy low and ride their investment all the way up to the top. Such a turning point has certainly come for Greece.

You can see it in the streets. Visiting Athens last week, I was struck by the crowds on Ermou Street, the pedestrianised shopping area. The boarded-up windows in the Kolonaki neighbourhood are slowly giving way to boutiques. Bars and restaurants are once again bustling.

You can see it in the markets. Sovereign yields are now lower in Greece than in the US, a remarkable accomplishment (even if the European Central Bank’s negative policy rate is largely responsible) and Greece is pushing to repay its IMF loans early. The main Greek stock index, the Athex, has soared more than 40 per cent since January, roughly double the rise in the S&P 500 over the same period.

You can also see it in the data. After contracting by more than 25 per cent during the crisis, Greek gross domestic product grew by 1.9 per cent in 2018, faster than Germany and France. In July of this year, Greece recorded the strongest manufacturing purchasing managers’ index score in Europe. Consumer confidence hit a 19-year high in August.

And, Greeks will tell you, you can see it in the tavernas. The country recently elected a new centre-right leader, Kyriakos Mitsotakis, who wants to cut taxes and accelerate privatisations, but local friends tell me the greatest sign of improvement is that politics aren’t discussed nearly as much any more.

Still there are some worrying signs. The foreign direct investment that would boost the country’s growth and productivity has been slower to arrive. While FDI is up, the rate of increase halved in 2018 and state-run Enterprise Greece notes FDI “is relatively low compared to the country’s opportunities.” Greek banks are still stuffed full of non-performing loans and the government is mulling over a €9bn asset protection scheme to absorb them. Until they are fixed, investment credit will be hard to access.

The most optimistic forecasts show Greece growing just over 2 per cent this year. This may be above the eurozone average, but it is shockingly low given the depression the country endured. Oxford Economics predicts Greece won’t recover to its pre-crisis GDP levels until 2033. The recovery has also been weak for the average Greek. Five years after the 1933 nadir of the Depression, US GDP per capita had risen by 35 per cent. Five years after the depths of Argentina’s 1998-2002 crash, GDP per capita was up by 45 per cent. But from 2013 to 2018, Greece’s GDP per capita rose by less than 6 per cent.

Greece’s internal devaluation saw average wages and pensions slashed by more than 25 per cent from peak to trough, killing domestic demand. Ordinarily that leads imports to collapse and catapults a country into current account surplus. But Greece managed a current account surplus for only four months, in 2016, as the supply-side reforms creditors demanded during the crisis failed to address competitiveness issues. The World Bank’s “Doing Business” report ranks Greece 72nd globally, below all eurozone countries save Malta.

So lift a glass of mastiha for Greece (I did). The battered economy is recovering and hot money is flowing in. But until the fundamentals improve, this phoenix still has one wing tied down.

The writer is a senior fellow at Harvard Kennedy School

Source >> https://www.ft.com/content/1335a134-e106-11e9-b8e0-026e07cbe5b4

You may also like

Είμαστε μια ομάδα που αποτελείται απο δημοσιογράφους, ερευνητές, εκφωνητές, οικονομολόγους και όχι μόνο. Αν έχετε τυχόν ερωτήσεις, είμαστε στη διάθεσή σας στο ακόλουθο e-mail.

Contact: [email protected]

@ 2022 – All Right Reserved. Designed and Developed by WebLegends.gr