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Searching for Greece’s 2nd derivative

After six years of recession, the crucial question is whether the Greek economy is approaching the “turning point” at which the growth rate will switch over from a negative to a positive value.

However, the real turning point for the Greek economy – which will prepare the ground for the transition to growth – will occur when we change over from an accelerating to a decelerating pace of economic contraction. An intuitive way to identify the real turning point is when the rate of change of the growth rate switches over from a negative to a positive value (in other words when the second derivative changes sign).

In order to detect this point when the intensity of recession shifts from increasing to decreasing, we look at the variation rates along with the 2nd derivative for a series of basic macroeconomic aggregates, such as GDP, employment, credit expansion and public finance.

Our basic conclusion is that since the 4th quarter of 2012 and the beginning of 2013 we have switched over to a period of continuing containment of economic recession. At the same time, the negative impact of the restrictive fiscal policy is constantly decreasing. This change is also reflected in the improvement in economic expectations as well as in equities and bonds. The next step towards the return to growth – as we have underlined numerous times – must come from the stabilization of the non-cyclical elements of GDP, primarily consumption, which – until now – has failed to show signs of improvement.

Ilias Lekkos
Group Chief Economist