Saturday, 26 May 2018

Economics is not all Greek, if you can decipher the lies

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Economies are funny old things. As they are by nature cyclical, both bulls and bears will always find themselves to be right – sooner or later. They say of the Isle of Skye in the west of Scotland if you can see the horizon it’s going to rain and if you can’t see the horizon, it is raining. Economies are similar.

Anthony Peters, SwissInvest Strategist

The clever bit is to guess the amplitude and, as we watch GDP figures winging their way in from across Europe, we will, I suspect, not really be much the wiser.

France steadfastly refuses to fall into recession as this morning it reported QoQ GDP at 0.0%, this being the fourth out of the last five quarters at which it has hit zero without ever dipping below. The forecast had been for –0.1% which, by itself, would not have marked a return to recession.

One might be tempted to suspect just the tiniest bit of Greek accounting going on here, especially given some of the components we have seen recently, not least of all the manufacturing and industrial output data which I have highlighted before. Irrespective, the history books will show zero growth QoQ and +0.2% YoY. Job done.

Germany also reported Q2 GDP today, but this picture, though better, was worse. Although still growing at a rate of 1% YoY, this is the sixth consecutive quarter during which the annual rate of German growth has declined. The Federal Statistical Office still reports both seasonally adjusted and non-seasonally adjusted figures which makes a lot of sense but which, when it comes to the same for unemployment, has me perplexed.

Imagine you have lost your job in beautiful Castrop-Rauxel. You head down to the Labour Office to register, only to be told that you might be non-seasonally adjusted unemployed but that, seasonally adjusted, you are not. Sorry, mate, no cares. Anyhow, the n.s.a. YoY growth rate of the economy missed the 0.9% forecast and reported at 0.5% – still strapping by broad European standards, but clearly reflective of the lack of activity in some of its key eurozone markets. The adjusted growth rate, however, was still at 1% and not far off the 1.1% which the forecasters had marked.

I could, of course, bore with Greek GDP which reported yesterday at –6.2% which was in fact treated as a positive surprise, Not only had the Greek economy been forecast to shrink at an annual rate of 7% but the –6.2% represents a slowing in the rate of decline from the –6.5% reading in the first quarter.

However, given the rather haphazard nature of the Greek economy, I can’t see us getting any closer than rough “guesstimates” at best. It’s probably a bit like standing on the plot where your house once stood and arguing over whether it had been carried away by a Category 4 or a Category 5 hurricane. With unemployment among the under-25s now officially reported at 55%, prospects for any sustainable recovery in both the economy and the fiscal position remain … (you can fill that in yourselves).

No longer a joke

Without the option of devaluing versus the likes of Germany and France and regaining some form of competitiveness, Greece has no hope of recovery. We can only sit and wait and see whether the inevitable euro exit takes place before the last Greek company closes down and shutters its premises or whether political vanity continues to push that proud country ever deeper into the mud. One has to understand those who believe that the charade of Greek eurozone membership and fraternal solidarity has gone beyond being a joke and that the time has come to face up to simple realities.

As an aside, while the UK is still sitting on its tuchis and collectively basking in the glory of its individual athletes’ hard work and dedication (as well as a bucket load of government funding), there was a little snipe at Greece which went home with “only” two bronze medals. They were pratting on about how little “feel-good” would be derived from this modest medal haul.

Sympathy for Austria

I hope that is not to be taken too seriously or else we will all have to be aggressively shorting Austria which, much to its own horror, did not win a single medal across any Olympic discipline. My sympathy to all our Austrian friends who can take heart as it’s only two years to the next winter games where you will certainly do a lot better than the Greeks.

Alas, the pan-European economic picture still isn’t particularly rosy and getting excited over statistical errors as to whether an economy has grown by 0.1% or contracted by the same amount is facile. The grand rebound which lax monetary policy and the alphabet soup of shadow central banks was supposed to deliver has not materialised. It will also barely do so for at least another two years – didn’t they already say that two years ago and we must ask ourselves what the purpose is of souping up the car so that it can go even faster in the wrong direction?  Oh yes; those old lies, darned lies and statistics.              

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