Greece Macro View - July 2014

​​​An improved outlook regarding job creation

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After 6 years of severe recession that led to a cumulative loss of 1.1 million jobs, the Greek labor market has started to show signs of recovery. Employment contracted by only -0.9% y-o-y in Q1:2014, compared with -2.9% in Q4:2013 and -4.9% y-o-y in FY:2013, whereas the latest readings for conjunctural and forward-looking indicators signal an expansion in employment in Q3:2014.​

More than two thirds of employment losses in the private sector (730,000 jobs) are due to the closure of about 220,000 micro and small firms (30% of the existing micro & small enterprise population) together with layoffs in this segment. 

NBG Research's composite indicator of employment trends, that combines information from forward-looking and coincident  indicators, points to an employment growth of +0.6% y-o-y in Q3:2014 (or +20,000 jobs) and +0.9% y-o-y (or +32,000 jobs) in Q4:2014 compared with the same period of 2013. The improvement rises to +1.0% y-o-y (about +36,000 jobs) in Q3:2014 and +1.3% y-o-y (+45,000 jobs) in Q4:2014, if one includes the net impact of labor market support programs.

As a result of the intensive wage adjustment (wages fell by 23% in the period 2009-2013) and employment contraction (-24% cumulatively during 2009-13), the wage share in the economy fell to the low level of 48% of GDP -- 13 pps below its 25-year average. On the other hand, capital income, mainly comprising the gross operating surplus of the business sector, has proved more resilient.

This conjuncture has become increasingly favorable for new hirings, as improving business profit margins should lead to higher investment and business expansion. Results from NBG's VAR model, linking employment to corporate profitability and output growth, suggest that it will be profitable for Greek firms to increase their employment by an average pace of 2.5% per annum until 2020, or 19.6% cumulatively during 2014-2020 (720,000 employment positions), pushing the unemployment rate below 21% in 2016 and 12% by end-2020. Such employment creation will clearly depend on the timely implementation of the programme, including its growth-enhancing structural reform agenda.

Τhe analysis also includes:

Overview of economic and fiscal developments in Greece and key macroeconomic forecasts.