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Economy heading deeper into recession
Athens Plus, 16 October 2009

The downturn in Greece's industrial and construction sectors continued last summer and Finance Ministry officials predict that the recession will be deeper than initially expected, possibly reaching 1.5 percent of gross domestic product.

According to the latest figures of the National Statistical Service (NSS), the number of building licenses issued in July were down 17.3 percent year-on-year and industrial production in August fell 8.8 percent - registering the 15th straight monthly drop.

Construction and industry have a major impact on Greece's GDP, which shrank 0.3 percent in the second quarter of the year - a worse-than-expected figure causing officials to revise a previously estimated figure of a 0.9 percent annual drop to 1.5 percent.

An additional reason fueling their concern is the weakening of the US dollar versus the euro, which has amounted to 17 percent over the last 12 months. The weaker dollar makes the country's exports and tourism less competitive, while dollar-priced imports become cheaper than respective Greek products. This comes at a time when, due to the global economic downturn, the value of Greek exports has shrunk anyway.

Also, as tourist services become more expensive, the country loses a significant number of dollar-paying visitors. Therefore, rival destinations such as Turkey, Croatia and Egypt gain a competitive advantage as their currencies are weaker vis-a-vis the dollar than the euro is.

Transactions in shipping, the country's other major currency earner, are also conducted in dollars. When Greek ship owners convert their earnings into euros, there is a loss.

The stronger euro, of course, does not have the same impact on all eurozone countries. Greece has a less open economy than Germany, for example, and will be affected less.

The silver lining in this development is that cheaper imports help contain or even reduce inflation, especially oil, on which Greece is heavily dependent. Also, the economic downturn helps to reduce the country’s huge trade deficit, as imports decline much more than exports. In August, exports were down 12.8 percent to 993 million dollars and imports fell 37 percent to 2.8 billion.

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