Macro roundup: Jobless rate resumes climb

Deflation is another sign of the Greek economy's weak state going into crisis

The increase in Greece’s unemployment rate to 17 percent in May won’t have come as much of a surprise, but it’s still a tragedy.

While other countries may have seen more dramatic spikes in their unemployment charts, Greece’s jobless rate going into this crisis was already incredibly high. Nevertheless, it had been slowly but steadily declining since it touched almost 28 percent at the height of the debt crisis seven years ago.

Those scars remain fresh. For now, we can just hope that lessons learned help us avert a return to those days.

More divergence

Consumer prices fell 2.1 percent in July from a year earlier, amplifying Greece’s divergence from the rest of the euro area.

The gap between the rate in Greece and the euro-area average currently stands at 2.5 percentage points, the most in more than six years. The country’s rapid descent into deflation is another sign of the economy’s weak state going into the crisis.

Still, in itself the gap does have some positive side-effects. Greek inflation ran consistently higher than the rest of the eurozone in the single currency’s first decade, resulting in an increase in the country’s real effective exchange rate. This was a major underlying cause of the debt crisis. Ensuring Greek inflation remains below the euro-area average remains an important economic objective.

Inflexion point?

Greece’s manufacturing PMI numbers for July were quite disappointing. They weakened since June, remaining at a level signifying contraction even as the euro area as a whole moved into expansion.

Up until June, Greece’s numbers were higher than the euro-area average. This reflected a general trend, seen most clearly in the first-quarter GDP numbers, where the Greek economy being hit hard by the crisis, but not as hard as it’s eurozone peers.

Elstat today released industrial production numbers for June that are consistent with that trend. Industrial production as a whole dropped 4.9 percent from a year earlier, an improvement from the 7.8 percent drop in May. Manufacturing fell just 1 percent, and increased 5.2 percent on a monthly basis.

The worry, from looking at July’s PMI numbers, is that this is as good as it’s going to get for a while. With the country starting to feel the effects of the “lost” tourism season, and the virus itself starting to spread again at an alarming rate, it feels like the crisis is entering a new stage.

Rearranging deckchairs

The government this week published for public consultation the eagerly-anticipated report from the Pissarides Commission, appointed in January to come up with a growth plan for the country.

Although it’s easy to agree with many of the things in the report, as a whole it reads like a pretty generic call for structural reforms of the kind that might have been written at any point in the last decade.

Some people might counter this criticism by saying it’s an indictment of how little Greece changed despite the crisis. Personally, I think the report provides an underwhelming vision for how to address the challenges Greece faces in 2020.

I will write more about the report in a future post, but for now Greek-speakers can read it for themselves here. I welcome discussion of it in the comments.

Next week’s key data

  • Elstat releases May building activity survey

  • Elstat releases June data on business revenue

Elsewhere on the web

  • MacroPolis’s latest Agora podcast takes a look at the pandemic’s toll on the Greek economy

  • In the FT, Rana Foroohar argues that tourism’s collapse could bring about the next stage of the crisis

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