Tuesday , July 5 2022

A strong need for continuing structural reforms



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"Continuing structural reforms and moving to a productive model with an emphasis on investment and exports are an urgent need for the Greek economy to achieve high growth rates over the next few years," Alpha Bank said in the Sunday Bulletin of Economic Achievements published today.

At the same time, it notes that "moving towards a larger export-based model is a factor that will give a comparative advantage to the Greek economy in relation to competing countries."

The Bank specifies the following:
Based on the latest available data on freight transactions in ELSTAT, exports of goods continued to accelerate in the period January-September 2018, while it increased by 16.9% annually in relation to an increase in imports of 10.1%. Exports of goods and services and a parallel decline in imports, observed during the economic downturn, led to a decline in merchandise trade in goods and services, which amounted to 0.9 billion euros. at the end of 2017 with EUR 21.6 billion in 2009. According to the autumn forecast of the European Commission, the growth of exports of goods and services is expected to continue (2018: + 8.4%), the sector contributing 1.6 percentage points to a vertical GDP growth of 2.0% in 2018.

In particular, as shown in Chart 1, exports of goods and services increased by 25% between 2009 and 2017 and amounted to 56.2 billion euros in 2017. The increase in total exports was mainly the result of the export of goods, which in the same period increased by 57.6%. At the same time, imports showed a declining trend, which fell by 14% during the period 2009-2017 (2017: 66.5 billion €, 2009: 57.2 billion), as available revenues and investment costs declined, resulting in a decrease in imports capital and consumer goods.

Imports, investments and disposable income

In particular, as shown in Chart 2, imports of investment products decreased by € 2.9 billion in the period 2009-2017, while imports of consumer goods, which account for most of imports, declined by € 2.7 billion in the same period These events are in line with the trend of declining by tracked investment in machinery and transport equipment (blue dotted line in Figure 2) and explain the decline in imports of capital goods. Similarly, the decline in available income partly explains the decline in imports of consumer goods.

The recovery of the Greek economy, which began in 2017 and accelerated in the first half of 2018, is expected to increase in the coming years the increase in investment in machinery equipment, which is expected according to the EC Commission report: 18.5% in 2019. At the same time, the expected improvement in the unemployment rate (a decrease of 1.4 percentage points to 18.2% in 2019 in 2019) will increase the available household income. These changes will stimulate domestic demand and therefore lead to an increase in imports of goods and services (Commission + 6.1% in 2019). We recall that in the years leading to the economic crisis one of the pathogens of the Greek economy was the fact that its production model is based on consumption, which is largely redirected to boosting imports.

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Export performance and competitiveness measures

During the economic crisis, lowering domestic demand has led many Greek companies to compete in international competition. This development, together with the implemented structural reforms, has led to the strengthening of the country's export activity. As the economy recovers, it is important to ensure that exports continue to increase through further enhancement of competitiveness. However, in spite of the significant recovery of the competitiveness of the economy achieved mainly through the reduction of labor costs (11.3% cumulatively in the period 2009-2017), there is a tendency for the decline in the International Competitiveness Index. In particular, according to the annual report of the World Bank (Doing Business 2019), Greece ranked 72 places in 2018 on the basis of the general index of easing operations, which is five places less than in 2017 (67th place).

The worsening of the country's position in 2018 relative to 2017 is the result of the fact that Greece experienced fewer improvements in some indicators than in other countries. In particular, in the index related to the ease of starting a business, Greece fell by 7 positions, the index of real estate registration and protection of minorities to 8 positions and access to financing for 9 positions. Greece, on the other hand, has significantly improved by 19 posts in the index relating to the issuance of construction permits.

Compared to competing countries such as Bulgaria, Cyprus and Portugal, the Greek economy is lower in the general index, while Malta is only lower in the EU (84).

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Comparing the performance of our country over a longer period, Greece appears to have made a significant improvement in 2018 compared to 2010 (Chart 3), both in the general ease of doing business in indices as well as in individual indices, with greater ease of starting up businesses, protection minority investors and cross-border trade. Significant improvement of the performance of the Greek economy in the general index and individual indicators is the result of structural reforms that have taken place since 2010, contributing to the improvement of competitiveness in combination with the pressure of unit labor costs.

However, the deterioration of this indicator in the current year compared to 2017 suggests that structural reforms are needed in order for the Greek economy to attract investment and lay the foundations for an environment favorable to export-oriented entrepreneurship. However, the chronic weakness of the Greek economy is the orientation of exports to low-product products, which makes it difficult for Greek products to penetrate the international markets as they face the fierce competition of countries with lower labor costs and lower tax rates.

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Chart 4 records production output at the technological level as a percentage of total production and export of high-tech products as a percentage of total exports of processing. Production of low technology in 2016 is increasing compared to 2010 and 2015, while the production of medium-low technology, which accounts for 44.3% of total production in 2016 compared to 50.6% in 2010, it falls. However, the product of high-tech products increased to 4.6% in 2016 from 3.4% in 2010. This increase is accompanied by an increase in exports of high-tech products as a percentage of total export of production to 11.5% in 2016, from 10.1% in 2010. However, it is below the corresponding rate for the euro area, which makes 17.5% of total exports for 2016.

Consequently, the continuation of structural reforms and the transition to a productive model with an emphasis on investment and exports are an urgent need for the Greek economy to achieve high growth rates in the coming years. In addition, moving to an export model based on high-tech products is a factor that will give a comparative advantage to the Greek economy in relation to competing countries.

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