Consumers far from miserable

George Papandreou, the grandfather of the current leader of the opposition, once said that while numbers prosper people are miserable. He said this in the early 1960s, when high growth rates prevailed and Greece was coming out of poverty. He, was, of course, the leader of the opposition when he said that. (A short while later, he became prime minister.) Today, it is the present government that wants to convince us that something similar is happening. Indeed, Economy and Finance Minister Giorgos Alogoskoufis says that the numbers indicating strong growth were, more or less, the invention of the previous Socialist government, which was ousted last March after more than 10 years in power. Without wishing to contradict Alogoskoufis, even the latest official statistics do not show a people wallowing in misery. Retail trade, for example, is constantly expanding. Indicators Last February, for example, the general retail sales index, measuring the value, not the volume, of sales, increased 9.8 percent, compared to February 2003. according to data provided by the National Statistics Service (NSS), the average rise of the index during the first two months of the year was 8.1 percent. Supermarket sales did even better, increasing 10.5 percent in February and 12.2 percent in January. Sales of furniture, electric appliances and other household equipment increased 12.7 percent. Hypermarkets’ sales increased 9.8 percent in January and 11.7 percent in February. A significant increase has taken place in the sales of luxury items and cars. Sales of new cars rose about 20 percent during the first quarter of 2004. According to Bank of Greece data, 85,522 new cars were sold during the first quarter, of which 28,344 in March, a 41 percent increase from last year. Most significantly, sales of luxury cars, thanks to the tax reduction offered by the previous government, soared. Fuel The behavior of consumers becomes ever more impressive in the face of successive price rises, as in fuel. With prices skyrocketing to all-time highs, there was no effect on sales or on traffic. Indeed, the previous weekend, which was a long one, thanks to Monday’s holiday, police braced for a mass exodus and were right. Car owners apparently were unfazed by high gasoline prices and would not sacrifice their excursions. Another indication that the economy is far from miserable is provided by the economic climate survey conducted by the Institute for Economic and Industrial Research (IOBE). In April, the economic climate index rose for the third month in a row and industrialists, as well as consumers, were upbeat, more so than in the EU as a whole, where the climate is improving, as well. Credit All the above means that consumption is rising. Only a part of this rise can be attributed to borrowing from banks. Although the prevailing argument is that credit expansion is fueling consumption, figures show that credit expansion is, indeed, slowing down. Still, during 2003, banks provided some 14.6 billion euros to households and enterprises. At the same time, deposits remain almost steady, due to the very low rates. In the first quarter of 2004, they grew only 1.6 percent, compared to the fourth quarter of 2003. The Bank of Greece contents that it is high pay rises that fuel consumption. In 2003, for example, a wage earner’s net income (after taxes and social security contributions) rose by 2.5 percent, while GDP per employee rose 2 percent. However, average inflation stood at 3.4 percent in 2003, making claims of high pay appear a little awkward. A sense of euphoria It is still possible to claim that Greece keep borrowing in order to maintain a certain lifestyle, or even improve it. This was helped by historically low interest rates. The question is whether exposure to borrowing is accompanied by a reliable estimation of future income and whether consumers are aware that interest rates may not remain low forever. At the same time, consumers seem to have a sense of euphoria, never mind the constant whining seen on TV reports. But it will be crucial to know if this euphoria is the result of a realistic assessment of future income or is merely an illusion. In any case, the mood is not the one described by the government.