Wednesday, May 01, 2013

How Greece was Supposed to Turn Out

As we approach the three-year anniversary of the Greek bailout, I thought these four charts would be instructive. They compare the forecasts made at the time (by the IMF and the Greek government) versus what actually transpired.

The first graph shows GDP indexed to 2008. According to the plan, GDP was supposed to bottom out in 2011 at ~8% below its 2008 level. By 2012, the Greek economy was supposed to be growing at 1.1%. Instead, GDP is 20% below its 2008 level and continuing to contract. The current thinking is that growth may come in late 2013 or 2014.

The second graph shows the country’s debt. In this case, revisions have changed the baseline. The initial forecast saw Greece’s debt/GDP ratio peaking at 149% of GDP in 2011 and 2012. But this assumed a starting point of 115% of GDP in 2009. Instead, debt in 2009 was 130% of GDP and the peak came in 2011 at 171% before a restructuring brought it down to 157% of GDP in 2012. This forecast is probably the closest to reality of the four shown here.

The third graph shows inflation. The forecast in 2010 expected that prices in 2012 would be a mere 4% higher than in 2008. Instead, prices in 2012 were 10% higher than in 2008—a miss of some 160%. As the IMF explained later, it underestimated the monopolistic and quasi-monopolistic structures of the Greek marketplace that would prevent prices from falling. That and steady increases in VAT pushed prices higher, squeezing households.

The last chart shows the unemployment rate. The 2010 forecast predicted that unemployment would peak at 14.8% in 2012 before declining to 14.3% in 2013. Instead, unemployment in 2012 averaged 24.2% and reached 26% in Q4 2012. The difference is almost 500,000 people.

In sum, the Greek economy has contracted by more than twice the amount forecasted in May 2010, prices have risen 1.6 times faster than anticipated, and unemployment has been 60% higher than expected.


  1. It beggars belief that any group of so-called experts could be so far out with their forecasts, lack of knowledge of Greece's foibles notwithstanding.

    Surely they could never have sold the memorandum in Greece had the real final figures been known, and this may have been the point.

  2. Now we know for certain why the greek people are so mad at Europe

  3. For fun, here's the "economic adjustment program for greece" may 2010.

    Section IV, Risks and Program Monitoring, section headlines only.

    "40.The Greek programme rests upon very strong foundations."

    "41. The fiscal adjustment is fairly distributed across the society, and protects the most vulnerable"

    "42. Importantly, the authorities are fully aware of the challenges, and they strongly own and support the programme policies and objectives "

    "43. Moreover, the design of the programme makes it robust to a number of unfavourable developments:"

    "-The fiscal programme is based on conservative assumptions."

    "44. But there are obvious risks."

    "- Growth. Inflation. Market Reaction. Implementation Risk. Data Surprises. Banking Sector. Contagion from Abroad.

  4. a great blog. getting lots of inspiration and guidelines for my master thesis on Greece.



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