Economic System, Demographics and Market Features of Greece - Research Paper Example

International Marketing Table of Contents Introduction 2 Greece 2 Population 3 Economic System 3 Stages of Economic Development 5 Market Characteristics 5 Income 5 GNP, GDP 6 Income Distribution 7 Inflation and Debt problems 7 Balance of Payments 8 References 10 Introduction In the present globalised world, business activities are not limited to any geographical boundaries. Intense competitions in the domestic market and untapped opportunities in the foreign markets have attracted the organizations in setting up business unites outside their home country. Today, organizations do not hesitate in investing in any foreign countries. However, prior to making any such decision they definitely try to gain insight into the demographics, economy, society and culture of the destination country. In depth researches are conducted by the firms to understand the economic system and the characteristics of market before introducing or marketing any product or service in any foreign market. Greece is one of the most significant countries in the Europe and as a consequence, various aspects of this country are required to be properly analyzed and understood prior to making any business decisions. This paper attempts to provide an understandable picture of the economic system, demographics and market features of Greece. It also contains a brief overview of the country so that a basic understanding about it can be gained. In addition to these, this paper also includes the consumption patterns, inflation and debt related problems that are experienced by Greece. Greece Greece can be located in Southern Europe. It is placed in between Turkey and Albania. Its borders are guarded by Ionian Sea, Aegean Sea and Mediterranean Sea. The country achieved independence in the year 1829. In 1974, it became a democratic nation and in 1981 it joined European Union. Further details on this country are provided at the following sections (Central Intelligence Agency, n.d.). Population According to BBC, in 2010, the total population of Greece was approximately 11.2 million (BBC, 2011). As per the data provided by Central Intelligence Agency (CIA) of US, Greece holds the 76th position among the most populated countries in the world. The country’s population is growing at a rate of almost 0.083% which is quite low as compared to other major countries in the world. In Greece, 66.2% people have age within 15-64 years and almost 19.6% are aged over 65 years. In 2010, only 61% of Greece’s total population used to live in the urban areas. Athens and Thessaloniki are the two important cities of the country. Athens is the capital and almost 3.252 million people live in this historically famous city (Central Intelligence Agency, n.d.). Economic System The economy of Greece is ‘capitalist’ in nature. 40% of the country’s GDP is contributed by the public sector. Apart from public sector, tourism is another major contributor to the national GDP. Almost 15% of GDP is contributed by this sector. One-fifth of Greece’s total work force is made up of immigrants (Central Intelligence Agency, n.d.). They are mainly involved in agriculture and other unskilled jobs. EU has been providing significant volume of aid to Greece. Such aids provide more than 3% of national GDP. During 2003-07, the Greek economy was expanded by almost 4% per year. The Athens Olympic Games that were held in the year 2004 resulted in significant spending in infrastructure and this helped the economy to grow further. Furthermore, during that period sufficient credit was available in the market and this increased the volume of ‘consumer spending’. The global economic crisis that started in 2008 took the Greek economy into its grip in 2009. The country went deep into recession and its economy was shrunk by almost 2% and 4.8% in 2009 and 2010 respectively (Central Intelligence Agency, n.d.). For six years (from 2001 to 2006) Greece violated the criterion regarding ‘Stability and Growth Pact budget deficit’ of EU, but during 2007-08 the criterion were met before violating again in 2009 when the deficit reached 15.4% of national GDP. It was reduced to 9.4% in 2010 due to some ‘austerity measures’. Inflation, public debt and unemployment rate were found to be above the average level of Euro-zone. The country’s economy was badly affected over the past one or two years due to consistent erosion of public finances and inaccurate statistics that led to a significant ‘credibility gap’ (Central Intelligence Agency, n.d.). The government was under immense pressure and was almost forced by EU and other global economic powers to adopt some ‘mid-term austerity program’ (Central Intelligence Agency, n.d.). Some of the important measures that were taken include reduction in government spending, reduction in the public sector’s size, decrease of tax evasion, reform of pension as well as health care system and improvement of the competitiveness of product and labor market. However, the government is getting pressurized by various powerful unions while implementing these reforms (Central Intelligence Agency, n.d.). Till 2010, Greece had a labor force of almost 5.05 million. Major agricultural products that are produced in this country are wheat, barley, corn, sugar beets, tomatoes, olives, tobacco, wine, beef and dairy products. On the other side, main industries include tourism, textiles, tobacco and food processing, metal, mining, petroleum and chemicals. In 2010, industrial production was increased at the rate of 3.2%. The country exports manufactured products, food and beverages, petroleum products whereas it imports products like machinery, fuels, transport equipments etc. (Central Intelligence Agency, n.d.). Stages of Economic Development Greece underwent significant economic transition during 1990s. Prior to this period, the country’s economy was lagging behind of its trading partners in terms of positive growth. During 1990-97 Greece’s economic growth was taking place at the rate of 12.7% (OECD, 2000). The country joined EU in 1981. However, internal liberalization came late in Greece, but when it came during 1990s, the country attained significant growth (Tilly & Welfens, 2007). In January 2002, Euro was adopted by Greece as its currency. This adoption allowed Greece to access the competitive loan rates as well as Eurobond market’s low rates. This in turn resulted in considerable increase in the spending power of the consumers in Greece. Due to such increase in spending capability, the country’s economy grew at a rate (4% per year) that was significantly greater than the average rate of EU member countries. However, this growth rate could be retained for a long time as the global recession came in 2008. Due to this financial turmoil, Greece’s economy shrank by almost 2% (U.S. Department of State, 2010) The global economic crisis deeply affected the accessibility of credit, domestic consumption and world trade and as a result of this Greece’s economy has been in deep trouble over the past two years. At present, the country is in the process of economic recovery. Market Characteristics Income Average salary of an individual in Greece is found to be around 650-850 Euro per month. However it is dependent on the education of the person and nature of the job. People who are employed in military, bank or public offices earn almost 1500 Euro in a month which is quite low as compared to the other countries that are located in Europe (Migrants in Greece, 2010). In fact, Greece is found to be one of the ‘worst-paid’ countries in the entire Europe. During early of 2010, the official rate of unemployment in Greece was almost 18%. Furthermore, more than 20% Greek live below official poverty level (Salzmann, 2010). Almost 60% of the pensioners have to survive with less than 600 Euro per month. Average salaries in case of public service have come down to 1200 Euro. The situation of ‘youth unemployment’ is even worse than the overall situation as in 2009 almost 27% youth who were having age within 15-24 years were without any work. Those who were lucky enough has been surviving with a salary of 700 Euro (Salzmann, 2010). Greece is one of those rare countries where most of the doctors are found to be unemployed. Cost of living in Greece makes the situation even worse. In fact it is found that the prices of basic foodstuffs that include eggs, milk and cheese are much more than those are found in country like Germany (Salzmann, 2010). Telephone charges in this country are found to be highest among all the European countries. The minimum wage that is legally allowed is around 700 Euro, whereas the highest wage for an entry-level job is nearly 1000 Euro. Most pensions are found to be lesser than the minimum level of wage. An engineer who has professional experience of at least 3 years earns 1050 Euro in a month, whereas a programmer gets 700 Euro and an accountant and a driver get 770 euro and 715 euro respectively (Salzmann, 2010). GNP, GDP Since 2008, GNP of Greece is decreasing consistently. In 2008, Greece had a GNP of $344.8 billion which went down to 337.9 billion dollar in 2009 (Central Intelligence Agency, n.d.). In 2010 with more contraction of the country’s economy, GNP stood out to be at $321.7 billion. Such declination is the result of global economic crisis that started off in 2008 and the failure of country’s internal policies (Central Intelligence Agency, n.d.). As far as GDP is concerned, in 2010 Greece’s GDP was $302 billion and this is lowered by almost 3.5% from the last year’s figure (BBC, 2010). Income Distribution With very low income, almost 20% of Greece’s total population lives below poverty line. As the unemployment rate is at 18%, most of the people fall in the low to lower-middle income group. Only a small section of the population falls in the high income group. Inflation and Debt problems In 2009, inflation in Greece was at 1.2%, but it increased to 4.5% in the next year. It has remained same even in this year (Central Intelligence Agency, n.d.). The most critical problem that this country has been facing over past two years is related to ‘debt’. In case of Greece low interest rates and high growth rate have worked as mask for major weaknesses in the structural and fiscal policies. However, when the global financial crisis came in, this mask was wiped out. As a consequence of huge fiscal deficit (12.4% in 2009 and 15.4% in 2010), mounting entitlement costs, rigidities in labor and product markets and deteriorating competitiveness due to high inflation rate, have questioned the sustainability of the public debt of Greece. In 2009, when the new government came in the power it discovered the huge volume of national debt (almost 262 billion Euro). The prime minister of the country, George Papandreou, within seven days of taking charge declared that Greece’s economy was in intensive care (Smith, 2009). In 2009 it was projected that the country’s debt will rise to 135.4% of its GDP by 2011. The rating agency, Fitch, rated Greece’s debt as BBB+ (Seager & Smith, 2009). In December, 2009, Papandreou came up with an ambitious plan with the objective of reducing deficit by almost 4% within 2010-2011. Considering the situation, he requested for assistance from the European countries as well as from US and IMF. In May, 2010, the European leaders, IMF Executive board and Greek parliament approved an aid of $145 billion. The agreement was for 3 years (U.S. Department of State, 2010). In exchange of this huge financial aid, Greek government declared ‘tax increases’ and ‘spending cuts’. Its plan was to accumulate $40 billion during the next three years through these measures. The entire situation has been getting monitored by European Central Bank, European Commission and IMF (U.S. Department of State, 2010). Despite of several austerity measures, structural reforms and fiscal consolidation, Greece failed to meet its target that was set by IMF and EU. In fact, according to Eurostat (statistical office of EU), debt figure and fiscal deficit of Greece have again gone up in 2010. The lenders have been forcing government for increasing the tax collection, and reducing spending. They are even planning to provide Greece more time for repaying its loans. Balance of Payments According to the latest information that is released by Bank of Greece, in February 2011 current account deficit is lowered substantially to 1959 million Euros. In the February, 2010 the country’s current account deficit was almost 3159 million Euros. Such improvement is the result of increase in ‘current transfer receipts’, increase in exports of products (excluding ships and oil) and decline (237 million Euros) in the imports of non-oil products (Bank of Greece, 2011). However, trade deficit is increased by 113 million Euros due to increase in the imports of oil. In February, 2011, deficit of combined balance of capital transfers and current account has reached 1.6 billion Euros. Exactly one year ago it was around 3.1 billion Euros (Bank of Greece, 2011). References Bank of Greece, 2011, Balance of payments: February 2011, Information Centre, Retrieved from http://www.bankofgreece.gr/Pages/en/Bank/News/PressReleases/DispItem.aspx?Item_ID=3612&List_ID=1af869f3-57fb-4de6-b9ae-bdfd83c66c95&Filter_by=DT Accessed on April 22, 2011. BBC, 2010, Greek economy shrinks a further 1.5%, NEWS Business, Retrieved from http://www.bbc.co.uk/news/business-10951857 Accessed on April 22, 2011. BBC, 2011, Greece country profile, Retrieved from http://news.bbc.co.uk/2/hi/europe/country_profiles/1009249.stm Accessed on April 22, 2011. Central Intelligence Agency, No Date, Greece, Europe, Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/gr.html Accessed on April 22, 2011. Migrants in Greece, 2010, What is the average income of a person in Greece?, Retrieved from http://migrantsingreece.org/jobs-in-greece/what-is-the-average-income-of-a-person-in-greece Accessed on April 22, 2011. OECD, 2000, Greece, OECD Publishing Salzmann, M. 2010, The social situation in Greece, International Committee of the Fourth International (ICFI), World Socialist Web Site, Retrieved from http://www.wsws.org/articles/2010/feb2010/gre3-f25.shtml Accessed on April 22, 2011. Smith, H. 2009, The new Iceland? Greece fights to rein in debt, Guardian, Retrieved from http://www.guardian.co.uk/business/2009/nov/30/greece-iceland-debt Accessed on April 22, 2011. Seager, A. & Smith, H. 2009, Financial markets tumble after Fitch downgrades Greece's credit rating, Guardian, Retrieved from http://www.guardian.co.uk/world/2009/dec/08/greece-credit-rating-lowest-eurozone Accessed on April 22, 2011. Tilly, R. H. & Welfens, P. 2007, 50 years of EU economic dynamics: integration, financial markets, and innovations, Springer. U.S. Department of State, 2010, Economy, Background Note: Greece, Retrieved from http://www.state.gov/r/pa/ei/bgn/3395.htm#people Accessed on April 22, 2011. Read More