Greece's Economic Outlook

I have earlier stated that I believe low oil prices will provide a notable boost to the so-called PIGS--Portugal, Ireland, Spain and Greece.  The Mediterranean countries, in particular, still spend a high percent of GDP on oil imports, even after draconian oil consumption reductions averaging 25-32% since 2005.

The political situation in Greece is now a bit dicey, but not because the macro indicators are moving in the wrong direction.  As the graph below shows, Greece now has positive GDP growth, a current account surplus and a largely balanced government budget.  Indeed, Greek GDP growth tied for third highest in the Euro Zone in Q3 2014.

Greece GDP Growth, Current Account and Govt Budget Balance, as Pct of GDP Source: OECD, ECB

Greece GDP Growth, Current Account and Govt Budget Balance, as Pct of GDP

Source: OECD, ECB

Thus, Greece has largely rebalanced its key macro accounts without leaving the Euro Zone.  Nor is it clear that leaving the Euro at this point would be a great benefit to Greece.  The pain of internal adjustment in the face of a fixed exchange rate has largely been absorbed.  Internal devaluation appears to be materially complete.

Indeed, Greece should benefit greatly from low oil prices, which should lead to a smart recovery in tourism, on the one hand, and a notably improving petroleum trade deficit, on the other.

Thus, while Greece may appear to be suffering a crisis, it is a political, not an economic, one.  The country could certainly use some debt relief, and more importantly, the aligning of politicians' pay with sustainable GDP growth, but that is another matter.

Often, repressive regimes fall apart not during periods of heightened repression, but during periods of liberalization.  Dictatorships tend to fall apart when the seek to accommodate public opinion.  Greece may prove the same.  Voters there may rebel, not because they need to, but because the macro indicators are finally good enough to allow them that option.