Structural Changes Arising from the Loan Agreement for the Greek Economy

Structural changes arising from the loan agreement for the Greek economy

By

Busunis Manolis, Economidis Charalambos

Department of Public Administration, Panteion University

SUMMARY

The purpose of this paper is to ascertain the development of the Greek economy for the years 2005, 2009 and 2013. It also seeks to determine what the development of the Greek economy will be at the level of sectors due to implementation of the Medium-Term Fiscal Strategy 2012-2015, which was drawn up by the Greek government and its creditors in the framework of the loan agreement known as the Memorandum.

The construction of the input-output table for 2013, which constitutes a projection, is based on the application of an input-output model having final demand and imports – based on the Medium-Term Fiscal Strategy 2012-2015 – as exogenously determined. A table for 2013 will then be constructed on the basis of OECD data and compared with the table compiled on the basis of the Medium-Term Fiscal Strategy 2012-2015. This comparison is made in order to ascertain whether the MTFS data are realistic.

The results suggest that in order to meet the targets/projections of the Medium-Term Fiscal Strategy 2012-2015, a significant positive shift will be necessary in the activity of export-oriented sectors. Key sectors which up to and including 2009 played a strong role in the growth of the Greek economy – such as Tourism(Hotel and Restaurants), Construction –work remain static. In addition, a drastic reduction is anticipated in the participation of all sectors that comprise the ‘State’, namely Education services, Health and social work services and Public administration & Defence services; compulsory social security services.

INTRODUCTION

The purpose of this paper is to ascertain the development of the Greek economy for the years 2005, 2009 and 2013. It also seeks to determine what the development of the Greek economy will be at the level of sectors due to implementation of the Medium-Term Fiscal Strategy 2012-2015, which was drawn up by the Greek government and its creditors in the framework of the loan agreement known as the Memorandum. The construction of the input-output table for 2013, which constitutes a projection, is based on the application of an input-output model having final demand and imports – based on the Medium-Term Fiscal Strategy 2012-2015 – as exogenously determined. A table for 2013 will then be constructed on the basis of OECD data and compared with the table compiled on the basis of the Medium-Term Fiscal Strategy 2012-2015. This comparison is made in order to ascertain whether the MTFS data are realistic.

The aim of this paper is to present as fully as possible the evolution of the main sectors of the Greek economy for the period 2005-2013.

More specifically, to make the presentation more complete, the following structure has been chosen:

The first chapter presents the methodological framework of the project.

The second chapter presents and comments on the overall results of the input-output tables for the years 2005 and 2009 for each sector and in aggregate for the Greek economy. The input-output table for 2005 is the final published table compiled by the Hellenic Statistical Authority (EL.STAT.). The table for 2009 derives from the construction of a symmetric input-output table from a supply table and a use table (Soklis).

Furthermore, this chapter presents the construction of an input-output table for the year 2013, which constitutes a projection, based on the application of an input-output model having final demand based on the Medium-Term Fiscal Strategy 2012-2015 as exogenously given, using the ratios of the direct technical (input) coefficients derived from the input-output table for 2009.

The second chapter additionally presents the construction of the table for 2013 given final demand and imports based on OECD data and the two tables for 2013 are compared.

Lastly, the paper closes with the conclusions resulting from the analysis performed in each chapter.

Thus the structure of the paper is as follows, the first chapter contains theMethodological framework, and the second chapter presents the data of the input-output tables for 2005 and 2009. Also, the construction of the input-output table for 2013 (with the data of the Medium-Term Fiscal Strategy and OECD) and its comparison with the corresponding tables for 2005, 2009. In the third chapter the paper closes with the conclusions

1. Methodological Approach

It may be deduced from the presentationof the production and turnover indices for the main sectors of the Greek economy (Busunis, 2011) that from the onset of the economic crisis (late 2008), all subsectors have registered losses. With the exception of industrial production, which showed losses prior to the emergence of the crisis, all subsectors had remained firmly in positive territory up to and including 2008, whilst from 2009 they recorded steady losses up to and including the first half of 2011. The course of employment has been very similar in all subsectors of economic activity. The positive growth rate, before the outbreak of the economic crisis, had been based on the continuous rise of Final consumption expenditure by households (+22%) and government (+36%) consumption, but without the corresponding implementation of major investments (-1.1%) and consequently a suitable climate was not created for the maintenance of economic growth (EL.STAT. data).

In this chapter, we shall conduct an analysis of the intersectoral relations of the Greek economy, using the input-output tables for 2005,2009 and 2013. The input-output table for 2005 is the final published table compiled by EL.STAT. (EUROSTAT). The table for 2009 derives from the construction of a symmetric input-output table from a supply table and a use table (Soklis, 2012).

The construction of the table for 2013 was based on the technical characteristics of the table for 2009 (i.e. the fixed ratios of the technical coefficients and final demand for 2009), as well as exogenously given final demand and imports, as set out in the macroeconomic projections of the Medium-Term Fiscal Strategy 2012-2015. The allocation by sector of exogenously given final demand for 2013 per column was based on the ratios of the 2009 results by sector to overall private/government consumption, total investment and total exports after tax in the input-output table for 2009.The above allocation was tested with the corresponding elasticities of the sectors derived from the comparison of data for the years 2005 and 2009.

Also presented is the construction of the table for 2013 given final demand based on OECD data and the two tables for 2013 are compared.

The fact that no official input-output tables have been published since 2005 is certainly a drawback for the completeness of the paper’s results. However, the conclusions drawn may be revised following the publication of official tables by the proper authorities. Consequently, greater importance is attached to the trends within the sectors and theirinterrelationrather than to the absolute figures themselves.

Presented below is the MTFS 2012-2015showing the respective final and projected economic data.

Table: Macroeconomic aggregates.Medium-Term Fiscal Strategy 2012-2015

Amounts in euro billions at current prices
2009 / 2010 / 2011 / 2012 / 2013 / 2014 / 2015
Private consumption / 172.6 / 172.7 / 169.1 / 168.8 / 172.5 / 176.3 / 180.2
% real growth / -2.2 / -4.5 / -4.8 / -1.2 / 1.1 / 1.2 / 1.3
Total Investment / 32.2 / 33.9 / 31.5 / 31.3 / 32.1 / 34.0 / 36.3
% real growth / -13.9 / -16.5 / -7.1 / -2.2 / 1.1 / 4.0 / 5.0
Government consumption / 49.7 / 41.9 / 37.7 / 36.5 / 36.5 / 36.8 / 37.3
% real growth / 10.3 / -6.5 / -8.4 / -4.0 / -1.0 / -0.3 / 0.3
Exports / 44.3 / 48.2 / 52.4 / 56.5 / 61.7 / 67.1 / 72.5
% real growth / -20.1 / 3.8 / 6.4 / 6.7 / 7.2 / 6.8 / 6.1
Imports / 69.5 / 67.7 / 67.1 / 66.5 / 69.0 / 73.1 / 76.6
% real growth / -18.6 / -4.8 / -4.2 / -3.0 / 1.6 / 3.6 / 2.7
GDP / 235.0 / 230.2 / 225.4 / 228.4 / 235.5 / 242.9 / 251.9
% real growth / -2.0 / -4.5 / -3.5 / 0.8 / 2.1 / 2.1 / 2.7
Labour MarketUnemployment
% of workforce, national accounts basis / 9.0 / 11.5 / 14.5 / 15.0 / 14.5 / 14.0 / 13.6
External Sector (% of GDP)
External balance of goods and services, national accounts basis / -10.7 / -8.5 / -6.5 / -4.4 / -3.1 / -2.5 / -1.6
Current account, national accounts basis / -14.0 / -11.8 / -10.0 / -7.9 / -6.6 / -5.9 / -5.0
Gross external debt / 173.5 / 178.3
Net international investment position / -84.9 / -98.2
External Economic Environment (% of change)
World Output / -0.5 / 5.0 / 4.4 / 4.5 / 4.7 / 4.7 / 4.7
Euro area output / -4.1 / 1.8 / 1.6 / 1.7 / 2.0 / 2.0 / 2.0

Source: Hellenic Parliament (2011), Law 3985, Medium-Term Fiscal Strategy 2012-2015, Government Gazette 151/A’, p. 3216, Athens 01-07-2011.

It emerges from the data of the macroeconomic projections (with 2009 as initial year of comparison) that particular importance – for the attainment of the MTFS 2012-2015 targets – is attached to the significant increase of exports, the curtailment of imports, the relative stability of total investment (gross fixed capital formation and stock) as well as to the reduction of private and government consumption. In effect, this is the opposite of what actually happened between 2005 and 2009, when total exports and total investment declined slightly, imports grew significantly and government and private consumption increased at an equally high rate.

The data used to construct the input-output table for 2013 from the MTFS 2012-2015 were the following: the percentage change of private consumption, of total investment, of government consumption, of total exports and total imports for 2013 in comparison with 2009. Then, the respective values of the above aggregates contained in the input-output table for 2009 were multiplied by the corresponding percentages deriving from the changes previously calculated.

OECD MACROECONOMIC INDICES
Current prices,euro billions / % real growth (prices 2005)
2008 / 2009 / 2010 / 2011 / 2012 / 2013
GDP, euro billions, current prices / 232.9 / 225.4 / 217.6 / 204.3 / 198.2 / 199.1
Private consumption / 169.1 / 166.9 / 160.9 / 152.4 / 144.4 / 143.3
% real growth / -1.30% / -3.60% / -5.30% / -5.20% / -0.80%
Total Investment / 51.6 / 43.8 / 37.2 / 31.2 / 29.5 / 29.8
% real growth / -15.20% / -15.00% / -16.10% / -5.50% / 0.90%
Government consumption / 42.2 / 44.2 / 41.0 / 37.8 / 35.3 / 33.5
% real growth / -7.20% / -8.00% / -6.60% / -5.10%
Exports / 56.2 / 45.2 / 47.1 / 50.9 / 54.2 / 58.0
% real growth / -19.50% / 4.20% / 7.90% / 6.50% / 7.10%
Imports / 89.8 / 71.7 / 66.5 / 57.0 / 53.7 / 53.9
% real growth / -20.20% / -7.20% / -14.30% / -5.70% / 0.20%
GDP / 232.9 / 225.4 / 217.6 / 204.3 / 198.2 / 199.1
% real growth / -3.20% / -3.50% / -6.10% / -3.00% / 0.50%
Labour Market Unemployment
% of workforce, national accounts basis / 9.5 / 12.5 / 16.6 / 18.5 / 18.7

Source: OECD Greece-Economic forecast summary (November 2011)

The procedure for constructing the input-output table for 2013 from OECD data was the same as that followed for the preceding table compiled on the basis of the MTFS 2012-2015.

2. Comparison of data in the input-output tables for the years 2005, 2009 and 2013

2.1. Input-output tables from the side of demand/use

From the side of demand, the analysis between2005-9and2009-13focuses mainly on the changesin intermediate demandand the componentsof the final demand

Agriculture, forestry and fishing

For the primary sector overall, a significant shift of outputs is projected towards total intermediate consumption in the period 2009-2013 to counterbalance exogenously given final demand; this is particularly evident in the results of ”Products of agriculture, hunting and related services” (from -46,2% to +3,6%)., which is the most important subsector. Also noteworthy is the marked shift in private consumption in the period 2005-2009 in the case of two of the three subsectors.

Mining and quarrying

For the mining and quarrying sector overall, an increase in total intermediate demand is projected in the mostsubsectors during the period 2009-2013. It should also be noted that between 2005 and 2009 exports declined in all subsectors with export activity, before rising again in the period 2009-2013.

Manufacturing, electricity, gas, steam and air conditioning supply, water supply, sewerage, waste management and remediation activities

Between 2005 and 2009, total intermediate demand rose in seventeen (17) subsectors and declined in eight (8). Total exports increased in thirteen (13) subsectors and decreased in nine (9). Private consumption grew in nineteen (19) subsectors, fell in four (4) and remained static in two (2). Total investment demand declined in ten (10) subsectors and rose in thirteen (13). In two (2) subsectors, no data are available for total investment.

For the period 2009-2013, total intermediate demand is projected to increase in fifteen (15) branches and decrease in ten (10). The eight (8) subsectors which showed a negative change in 2009 are expected to have a positive change in 2013. More specifically, these subsectors are Textile materials & products, Leather & leather products, Wood and products of wood and cork (except furniture); articles of straw and plaiting materials, Rubber & plastic products, Other non-metallic mineral products, Basic metals, Fabricated metal products (except machinery and equipment) and – marginally – Radio, television and communication equipment and apparatus.

Nine (9) of the seventeen (17) subsectors which registered a positive change in the period 2005-2009 showed a decline in total intermediate demand in the period 2009-2013. More specifically, these subsectors are the following: Tobacco products, Wearing apparel; furs, Printed matter and recorded media, Chemicals, chemical products and man-made fibres, Machinery and equipment n.e.c., Office machinery & computers, Medical, precision and optical instruments, watches and clocks, Motor vehicles, trailers and semi-trailers, Collected and purified water, distribution services of water.

Construction

Between 2005 and 2009, total intermediate demand rose sharply by 17%. Private consumption increased by 36.8%, whilst total investment showed a marked decline of -8.1%. In the same period, exports grew by 19%. It is also worth noting that the average annual production index for construction work increased between 2005 and 2008 before falling in 2009 (EL.STAT.). In the period 2009-2013, total intermediate demand is projected to decline by -2.8%. This decrease is considered to be low when bearing in mind the very sharp drop in the average annual production index for construction during the period 2009-2011 which has been calculated at over 30% on an annual basis (EL.STAT.).

Services

Declinetotal intermediate demand in the three main subsectors of Commerce, namely Trade, maintenance and repair services of motor vehicles and motorcycles; retail sale of automotive fuel, Wholesale trade and commission trade services, except of motor vehicles and motorcycles and Retail trade services, except of motor vehicles and motorcycles; repair services of personal and household goods along with a smaller increase (2009-2013 compared to the period 2005-2009).

For Tourism i.e. Hotel and restaurant services, an increase, though at a declining rate relative to the period 2005-2009 (from +33% to +5.2%).

A marked increase in Transportation, i.e. a positive change in the subsectors of Land transport and Transport via Pipelines services, Water transport services, Air Transport services and Supporting and auxiliary transport services; travel agency services.

Decline in Post and telecommunication services.

Decline in Financial Activities. A declinefor Financial intermediation services, except insurance and pension funding services and Services auxiliary to financial intermediation but a rise for Insurance and pension funding services, except compulsory social security services..

Decline inReal estate services as a result of the stagnation in construction and the major slump recorded in the real estate marketfrom the onset of the economic crisis up to the time of writing this paper.

In the Renting services of machinery and equipment without operator and of personal and household goods (-1.4%).

Decline in the Information Computer and related services.

A sizeable slowdown is anticipated for Research & Development (-11.1%) and Education (-10.3%), two subsectors that had registered strong growth in relevant demand in the period 2005-2009 (+69% and +39.2%).

A significant downturncalculated as important and at the same level with the sectors Research & Development and Educationservices is projected for the subsectors of Public administration and defence services; compulsory social security services, Health and social work services, whilst a smaller increase relative to 2009 is foreseen for Membership organisation services n.e.c.and Recreational, cultural and sporting services.

Regarding all sectors of the economy overall

The positive percentage change in total intermediate demand for all subsectors in 2009 relative to 2005 is (+9.4%). For 2013 relative to 2009, the positive percentage change in total intermediate demand is (+4.1%).

Facts pertaining to the composition of final demand in Greece for the years 2005, 2009 and 2013: With regard to all the aforementioned years, final private consumption is by far the largest component of final demand. Moreover, it appears that total investment as a component of final demand decreases in 2009 and remains static in 2013. The participation of government consumption in final demand is considerably reduced relative to 2009 (andsignificantly lower than the comparison with 2005), while the participation of exports in final demand is significantly increased.

2.2. Comparison of intermediate inputs, outputs and imports

Agriculture, forestry and fishing

Overall, the ‘Products of agriculture, hunting and related services’ subsector sets the trend in the sector because it is the largest. In effect, output is expected to recover, though not fully.

Mining and quarrying

For the sector overall there is a small increase in Intermediate inputsalong with a projected small decrease in imports.

Manufacturing, electricity, gas, steam and air conditioning supply, water supply, sewerage, waste management and remediation activities

For the secondary sector (excluding construction) as a whole in 2005-2009, imports rose in sixteen (16) subsectors and declined in seven (7). Two (2) subsectors do not export. In addition, total intermediate inputs are projected to increase in twenty-one (21) subsectors and decrease in four (4).

In thesecondarysectorfrom the 23 sectors, the 13 increaseoutput between2005-2009and between2009-2013of which largeare“Food products and beverages”, “Textiles”, “Wearing apparel; furs”, “Pulp, paper and paper products”, “Printed matter and recorded media”, “Coke, refined petroleum products and nuclear fuels”, “Chemicals, chemical products and man-made fibres”, “Rubber and plastic products”, “Basic metals”, “Electrical machinery and apparatus n.e.c.”, “Other transport equipment”, “Furniture; other manufactured goods n.e.c.”, “Sewage and refuse disposal services, sanitation and similar services” and “Electrical energy, gas, steam and hot water.”

Construction

Total intermediate inputs in the Construction work sector are projected to marginal decline (-0.2%) in the period 2009-2013, following the small increase of +2.5% between 2005 and 2009. Output between 2005 and 2009 registered losses of -4.1% and remained static (-0.2%) in the period 2009-2013. Imports in the period 2005-2009 rose by +37.5%, while between 2009 and 2013 they fell by -0.7%.

This development is particularly important since in the public debate this sector is referred to as the ‘engine’ of the Greek economy, whose progress impacts almost directly on the course of many other sectors of the economy. It is worth noting that Construction accounted for 8.5%, 7.1% and 7% of total output in 2005, 2009 and 2013 respectively. Together withReal Estate services, it represents 15%-16% of total output.

Services

In the period 2005-2009, seventeen (17) subsectors showed a positive change in total intermediate inputs and seven (7) a negative one. For 2009-2013 a positive change is projected for fifteen (15) subsectors, a decrease for eight (8) and no change for one (1).

It should be noted that thehighernegative change for 2009-2013 is projected exclusively in the subsectors of Health and social work services, Education services, Public administration and defence services; compulsory social security services.All the subsectors comprising a considerable portion of what is often referred to as the ‘State’ show a marked decline in 2013, while in 2009 they registered a significant increase. This is due to the application of projections relating to final demand and imports as set out in the MTFS 2012-2015.