ANALYSIS

Update of the National Accounts: Part 5

update-of-the-national-accounts-part-5

In previous Notes for Discussion, we presented an aspirational annual target for growth in labor productivity. Greece should aim to improve annual growth in labor productivity to 1.5 percent a year, from an average of 0.4 percent a year over the last two decades. In parallel with the calculations for quarterly GDP and inflation, as measured by the GDP deflator, we can also interpolate a quarterly path for productivity growth from the annual assumptions of a gradual recovery that we had made before. Having a quarterly path is helpful, because this allows monitoring progress as the quarterly national accounts’ updates become available from ELSTAT.

Figure 1 shows the preliminary approach to interpolating quarterly productivity developments from annual (projected) data. Thus, once again, the four quarters are consistent with the annual totals. The quarterly interpolation relies basically on the annual growth rates applied to the same quarter of the previous year (this picks up seasonality). However, because output and employment have behaved unusually in the past few years (because of the hiring boom in the public sector) and thus led to negative productivity growth, we had to transition heuristically from the negative productivity growth numbers in the past, which are not sustainable, to the more normal (assumed) pattern in the medium run. This means that the interpolation, despite its internal consistency with annual numbers, can turn out choppy and different for a few quarters in the next year or so, before they stabilize in an intuitive longer-run pattern. The aspirational objective of 1.5 percent labor productivity growth is reached here around 2023.

Recall that productivity is the result of two variables, output and employment, so it is interesting to see both variables individually. Figure 2 shows the scenario through the medium term (2023) of a figure that we have used in a previous note, where we documented that employment had started to lead output growth in the early days of the SYRIZA government. Since such a policy is unsustainable, we have to include in any consistent outlook that this process reverses and output starts leading employment again – hence restoring positive productivity growth. Thus, looking at Figure 2, the integral on the left of the space between the (higher) employment growth line and the (lower) output growth line represents negative productivity growth; whereas the integral on the right of the space between (higher) output growth and (lower) employment growth represents a return to positive productivity growth (the normal condition in a healthy economy). If we update the quarterly national accounts and the quarterly labor market survey with new data from ELSTAT and we do not find an indication that this reversal is proceeding, then the economy can stall, which would be a grave problem. Fortunately, it appears that in 2018 productivity growth is becoming positive again.

The figures above were calculated with recent data from ELSTAT through Q3 2018, with the projections appended and interpolated as explained above.

This Note concludes our look at the quarterly national accounts updates through Q3 2018. We have dedicated five Notes to analyzing different aspects of the information that is embedded in these quarterly updates, which indicates the wealth of information in these data. As new quarterly updates become available, the reader/analysts can repeat the analysis of the previous five Notes to see how the economy evolves and whether the plan to bring Greece back to lower and more sustainable debt remains on track.

In the next two Notes we switch to another topic of great interest for the Greek economy and that is the analysis of privatization.


Bob Traa is an independent economist. This is the 19th in a series of articles by him for Kathimerini titled “Notes for Discussion – Essays on the Greek Macroeconomy.”