Monday, October 10, 2011

New GDP Numbers Show Greece’s Lost Decade

The Greek Statistical Authority has revised its GDP estimates for 2006 to 2010. All the revisions, save the one for 2010, resulted in a lower GDP estimate, bringing 2010 GDP down by 2.9% in real terms. I don’t want to read too much into these revisions, but consider the following: the government now says it expects the economy to shrink by 5.5% in 2011 and by 2.5% in 2012. With the revisions in both the historical numbers and the new forecasts, Greece’s GDP in 2012 will reach 2003 levels (one caveat: the Greek Statistical Agency will also revise 2000 to 2005 numbers). In other words, Greece in 2012 will be exactly where it was in 2003 – effectively losing a decade’s worth of economic activity.
This fact is a painful reminder of the sacrifices made by the Greek people whose income will have declined by 14% during a five-year recession (if not longer). It also underscores that the Greek people are running out of patience – asking for more sacrifices during a prolonged recession becomes progressively harder as time goes by. The two questions that remain: can the government find ways to stimulate the economy (see here)? And more importantly, what comes at the end of this recession – will this has been an opportunity to pass serious reforms or will the “lost decade” be truly lost?


  1. It would be close to a miracle if the de-leveraging of the Greek economy could be done without experiencing negative growth rates.

    When the government has grown the economy with borrowed money, of course there will be less consumption and investment as the government repays its debt.

    Unfortunately, the general public seems to be hoping for some kind of miracle? Unless Greece 1) defaults, 2) exits the Euro and starts inflating, the country is bound to experience negative growth while repaying its debt.

    The next Greece is the US, who will eventually make the Greek difficulties seem like a walk in the park...

  2. I am a Belgian living in Germany and trying to make sense out of the economic developments in Greece and in Europe.

    I have just discovered your blog. I would like to congratulate you with the quality of your analysis and comments.

    Keep up the good work,


  3. Niko, I'm curious about whether you've read "A Modest Proposal" by the Athens Economist Yannis Varoufakis at

  4. Many policy planners in developed world seem to think that "printing" is a way out of too much debt. This line of thinking will conclude that if Greece left the EURO and re-adopted the drachma the problem will be over.

    The only advantage to re-adopting the drachma is that the "bailout" will be in Greece's own hands...via printing.

    However, printing never solves any "real" problem. One reason being that the process of money printing via the banking system does not uniformly distribute the buying power into the system. If a country wanted to distribute the new money somewhat evenly then it will simply increase the amount of money held as savings via 5, 10% etc and the market rates will adjust to this fact.

    In case of indebted countries...the current method of printing will will immediately impact foreign investors and domestic savers.

    If "printing" helped then it means that counterfeiting also helps. You will also be able to solve the unemployment problem by taking the unemployed to the beach and having one party dig a hole and the other fill it.
    The only real progress can be achieved by making investments which produces item which add value and produces more cash flow in the future which can then be invested for further positive compounding in the investment process.

    This is easier done in the individual or at the corporate level.... At the state level It is an enormous task to break this negative closer you are to the initial trickle of money being printed the better off you will be.


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