Out of control and away from the goals set by the government and the Troika, is already the recession in the economy. In the first quarter GDP shrank by 6.5 percent instead of 6.2 percent, as shown by the preliminary data of the Greek Statistical Service.
With the exception of the slight increase in exports and reduction of imports, all other indices recorded a sharp decline. The most significant and alarming is the decline in investments and reserves with a total of 33.4 percent.
This development is of concern because the objective of retaining the recession within 4.7 percent throughout 2012 will be very ambitious. Most likely this goal will be reviewed, which will move the recovery of the economy even further away in time.
The Bank of Greece provides for a recession somewhere in the area of 5 percent, while the Organisation for Economic Cooperation and Development is more pessimistic, with estimates that the recession will reach 5.3 percent.
GDP in the third quarter will be of key importance because there are fears that the decline in tourism and the decline in consumption due to the increased tax payment obligations, will cause a deeper recession.
A possible revision in GDP will cause chain reactions and changes in overall macroeconomic targets (deficit, debt, etc.), while reducing tax revenues, and as a result of which new measures will have to be taken.
The decline in GDP in the first quarter explains the increase in unemployment recorded over the first months of the year, with rates reaching 21.3 percent in January, 21.4 percent in February and 21.9 percent in March and the number of unemployed reached 1,075,081.
Decline in GDP
GDP shrank by 6.5 percent in the first quarter of 2012 and the following were the contributing factors:
- Reduction of total consumer spending by 7.5 percent compared with the first quarter of 2011. In particular, it was down to 39.8 billion Euros from 43 billion Euros in first quarter of 2011. Due to shrinking incomes household consumption fell by 8.5 percent to 31.8 billion Euros from 34.8 billion Euros in the first quarter of 2011.
- The remuneration of employees decreased by 15.5 percent in the first quarter of 2012 and amounted to 14.14 billion Euros from 16.727 billion Euros during the same period in 2011.
- Government consumption decreased by 3.2 percent and fell to 7.9 billion Euros from 8.2 billion Euros in the first quarter of 2011 due to reduction in primary expenditure in the budget.
- Gross fixed capital investment fell by 21.3 percent compared to the first quarter of 2011, down to 5.3 billion Euros from 6.75 billion Euros in the first three months of 2011. However, by adding the reduction of reserves of 962 million Euros, the total decline in gross capital reached 33.4 percent.
- Reducing the deficit in the trade balance partly offset the decline in GDP. In the first quarter of 2012 the trade deficit decreased by 41.9 percent compared to the same period in 2011.
- Overall during the first quarter of 2012 exports of goods and services increased by 1.4 percent compared to the same period in 2011. Exports of goods increased by 3.3 percent while exports of services fell by 1.1 percent, and this does not include a report on the expected downturn in tourism, which will happen in the third quarter.
- Imports of goods and services decreased by 16.6 percent compared to the first quarter of 2011. In particular, imports of goods decreased by 18 percent and imports of services - by 10.5 percent.
The failure in determining the scale of the recession is the main failure of the drafters of the first and second memorandum, as actual dimensions of the recession significantly exceed the initial estimates of the government and the supervisory Troika.
If the first memorandum was realistic, from 2012 the economy should have been reporting growth. In fact not only the recession still stays strong, but the measures already taken and those yet to be taken, are sinking the economy into an even deeper recession. The failed predictions of the Troika and the government regarding the scale of the recession are as follows:
1. The first memorandum of May 2010 stipulated that the Greek economy would report growth in 2012 amounting to 1.1 percent.
2. The medium-term fiscal framework, established in June 2011, provided that in 2012 the economy would grow at the rate of 0.8 percent and it was expected that there would be a "gradual acceleration of growth by 2015", with an average growth rate of 2.7 percent.
3. The draft budget for 2012, prepared in October 2011, disproved the expectations for growth and it was estimated that in 2012 the recession of the economy would be 2.5 percent.
4. A month later, in November 2011, the final bill reported a calculation that in 2012 the recession would be 2.8 percent.
5. In February 2012 the goal was reviewed once again and it was estimated that in 2012 the recession of the economy would reach 4.7 percent.
Taking into account recent events and signs, as well as the uncertainty over the past two months, it is almost certain that the figure mentioned in February will also be revised downwards, something that could affect also the year 2013. For next year the second memorandum provides for a zero change in GDP, with recession in the early months and economic recovery from the end of the year. The Organisation for Economic Cooperation and Development challenged the forecasts of the Troika and provides for a new recession of around 1.3 percent in 2013.
Decline in industrial production
In April, industrial production marked a new decline, due mainly to a contraction in domestic demand, with only export activity remaining on the upswing.