Country Analysis - Greece

CASE STUDY: COUNTRY ANALYSIS (GREECE)
The economy of Greece is the 34th or 45th largest in the world at $290 or $292 billion by nominal gross domestic product, which is stated by World Bank statistics for the year 2011. As of 2012, Greece is the thirteenth largest economy in the Europe. In terms of per capita income, Greece is ranked 29th or 33rd in the world at $27,875 and $27,624 for nominal GDP
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The Greece economy mainly depends on the agricultural sector which take a lot of portion of the output level of the country. This is because of its land is blessed with the presences of mountains and sea. The advantage of its land structure give the country on agriculture such as fishing and herding. Other than that, its economy also revolves around industrial sector, such as marble, cement and cigarettes production.

In the past decades, Greece has experience an increase in economy production especially between the year 2000 to 2008. The government have increase the level of expenditure to cope with the economy. During that period the wages are double the amount before it especially in the public sector which is the government’s main focus. But the rapid expansion came at a heavy price. The Greek government’s budget deficit has risen drastically over the years. The GDP has risen from 3.7% in 1998 to 13.6% in 2009. As a result, its external debt ballooned rapidly. Various factors have put Greece in big trouble. The country didn’t obey its fiscal policies and keeps on spending high. Further, the nation has a history of excessive military spending, the highest in the European Union and second highest in the North Atlantic Treaty Organization (NATO) after the United States. The average Greek defence spending, which is around 3.3% of GDP compared to the average of 1.7% for other European NATO countries, is really a threat to their economy. Eventually, Greece economy have fall down on to recession. The country is in crisis. For further understanding, the economy of the Greeks can be analyse in terms of the macroeconomic objectives.

GDP | LAST | PREVIOUS | AVERAGE | TREND | GDP GROWTH RATE | 0.20 | -2.80 | 0.46 | | | | | | | GDP ANNUAL GROWTH RATE | -5.60 | -5.70 | 0.51 | | | | | | | GDP PER CAPITA | 12653.44 | 13574.22 | 9348.30 | | | | | | | GDP PER CAPITA PPP | 26891.99 | 28409.60 | 17065.90 | | | | | | | GDP | 298.73 | 304.87 | 96.99 | |
Figure 1
From figure 1, the average of all the components of GDP are in a decreasing phase, although the growth rate has an increased figure, it is not high enough to cope to the recession and didn’t affect the overall GDP components.

As stated in the graph above, the growth rate has just only been increase in 2011 and for the past several years, it has its up and downs but for the overall, it is a fall in growth rate from 2008 to 2011. This has in turn, shifts the aggregate demand (AD) curve to the left. From the year 2008, Greece have a downturn economy and possibly it is the worst among the European countries.

The reason of such a recession is maybe due to its decline in investments not to mention the lower contribution of exports earnings. Other than that, the government have reduced its spending because of the overwhelming debts and consumption is also declining. The sign of recession, firstly noted during the third quarter of 2008 and it continues until the first quarter of 2011. All these can be simplified from a graph below. From the graph it clearly shows that consumption, investment, government spending are all declining, except for the trade which is positive. But for the overall, it makes the GDP to decline throughout the years. Clearly that investments are the main factor that contribute to the downfall which reach the lowest on the third quarter of 2009. Referring to the five sector model, as investment decrease, firms will have a lower budget for production, this will result in lower production of goods and services. Thus, it is significant to the downfall of GDP.

The other factors is because of the reduce of consumption, as we can see this is due to the GDP per capita is declining rapidly from the year 2008 which shows that the Greek population have a downfall in its income. Furthermore, household is coping with a few challenges, which is unemployment and less income. This brings us to yet another macroeconomic objectives, full employment.
From the unemployment rate graph, the rate is always increasing from a steady 5% of unemployment to a mega high of 26% unemployment which is the worst in the history of European Union. This due to the high cost of labour that is affected by the low amount of the labour force participation, which is cause by the recession itself. This affects the supply curve of labour and shifts it to the left. Moreover, when the consumption is reduced, the AD curve will shifts to the left and further widen the unemployment gap.

As the rate of unemployment increase, it will lower the wages and directly affect the level of consumption. Thus, it is justify that unemployment rate is related to level of consumption. That can be clarified using the graph below.
As for inflation, it is mainly depends on the government spending. Because of the inflation, government try to keep up its revenue with the increase of taxes. Furthermore, government have reduce their spending, it clearly shows that the government are trying to balance the economy during recession by reducing expenditure and increase the revenues. That will results in a higher inflation for households due to the increase in the tax. Government spends less but as recession and unemployment intensify, they are forced to spend more to those in need such as unemployment benefits and pension funds. The graph below shows the unstable inflation rate due to imbalance of government spending and revenues.

Although Greece are in a crisis there is still one positive thing happened, which is the trade. From the two graph below, there are certainly a rise in export and a downfall in import. This is because, as the country is in crisis, the inflation is notably low. The price of export is lower than of import, thus contributing to a positive trade.

When the trade balance is positive it is a good thing to the current account of the country as exports and imports is the main economic source for the country. Although the current account is still a deficit, it is a significant improvement for Greece as it deficit doesn’t get worse. It is shown in the graph below.
In addition, as there is a slight revenue in the positive trade balance, Greece can repay their external debts by not much but at least it has decrease. But the revenue is too low to cope with the mass amount of debt. From the graph there is only slight improvement on the external debt, which is during the 2011 until 2012.
As for Greece’s currency, the country has adopted the European Union official currency, which is euro. Commonly, the currency is compared to US dollar. | LAST | PREVIOUS | AVERAGE | TREND | CURRENCY | 1.31 | 1.30 | 1.36 | |

From the table above, the currency only slightly appreciated by 0.01. This shows that the trading activity of the country is not that active and these means that its interest rate has not experience a big change. Furthermore, the interest rate of European country is set by the European Central Bank, there’s nothing much a country can do about it.

As conclusion, it can be stated that Greece economy has been really in dilemma and crisis throughout the past several years, which starts at the third quarter of 2008. Among all the four macroeconomics objective components, only the trade balance has a positive outcome. Although the trade balance is positive, it is too small to help the economy which is in its recession. This clearly shows that Greece is having an economic crisis. The most significant negative effect of the economy comes from the unemployment rate, which is really high, 26%. For the GDP there are two factors that really give an impact to the rate, which is investment and consumption. Investment and consumption are low due to low business and consumer confidence. This is logical as the economy is in recession, consumers tends to lower their spending and business are in doubt to invest their money for future profit. As for the inflation, it is not stable and always been in its ups and downs due to the unstable spending and revenues of the government. In the future, maybe it is really hard for Greece to improve their wounded economy status because of their negatives macroeconomics component and not to mention their high external debt to the foreign country.