What are we learning from the Greek economic recovery?

Greece’s prospects look a lot brighter today. Gross domestic product grew by 1.4% last year, the first substantial annual rise since 2007, led by a sharp rise in investment. Business surveys show activity, new orders and hiring intentions at levels not seen for years. Economists expect around 2% growth this year.

Here is the full story (WSJ).  To the extent Greece’s problem was “demand only,” you would expect a much higher rate of bounce back.  To the extent Greece’s problem was in addition a) bad policy finally biting, interacting with the end of a boom, and b) multiple equilibria, with the world deciding Greece is a “Balkans economy” rather than a “West European” economy, you would expect growth rates of…one to two percent.

But if we start seeing 5-7 percent growth on the bounce back, that would imply a demand shortfall per se was the main culprit.  Keep in mind that (with some problematic measurement issues involved) at one point Greek per capita gdp had fallen by about 25 percent.

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