**Figure 7.a: Private investment to GDP (%)           Figure 7.b: Real growth in private consumption (%)**

<!-- Start of picture text --> 30.00 10.0<br>25.00<br>5.0<br>20.00<br>0.0<br>15.00<br>10.00 ‐5.0<br>5.00 ‐10.0<br>2000 2002 2004 2006 2008 2010 2012 2014<br>0.00<br>2000 2002 2004 2006 2008 2010 2012 2014<br>Greece Ireland Portugal<br>Greece Ireland Portugal Spain Spain EA‐19 EU‐28<br>Source: Eurostat. Final consumption expenditure of households.<br>Source: Eurostat.<br><!-- End of picture text --> _<u>Larger construction investment pre‐crisis, larger services expansion post‐crisis.</u>_ In all countries, the decline in the construction _share_ has been so large to date that it is now much smaller than it was in 2000; it fell 9pp of GDP in Greece and Ireland. Greece had the most pronounced cycle in construction, partly explaining its harder recovery. In all four countries, the _share_ of industry had been declining in the years leading up to the crisis and continued after the crisis, with the greatest decline in Ireland (where it fell 6pp from 2000‐14). The decline in construction was reflected in an increase in services. Recent research (see below) has shown that this trend is to be expected; the decline of the industrial sector may be hastened by construction booms. There is an acceleration of resource transfer from industry to construction during the boom period, and an expansion of services in the post‐boom period (see below).

_<u>Slow consumption recovery</u>_ <u>. An IMF study (2015c) finds that private consumption growth typically</u> becomes positive about 3 years after the peak of a boom period. In Spain, private consumption fell back to around 2000 levels and consumption growth has just turned positive after 7 years, while in Ireland and Portugal consumption turned positive 6 years after the peak of 2008. Both public and private sectors have contained wage growth and low real wage growth has added to deleveraging pressures; fiscal consolidation during the last few years has also constrained public sector wage and employment growth.

_<u>Varying export performance.</u>_ An important source of variation in growth performance in GIPS is export performance. Greece had the largest drop in exports (measured in constant US$) in 2009 – almost double that of Portugal and four and a half times that of Ireland. It had almost no growth in exports in real terms (0.3% during 2008‐14), compared with 3.6% for Ireland, 2.7% for Portugal and 2.1% for Spain. What might be the reasons? All four countries diversified export destinations after the crisis, but Greece’s adjustment is remarkable in this measure and far larger than that of comparators. The share of Greece’s exports to EU28 countries was the same as Ireland’s in 2007 (64%), but fell 25% between 2007 and 2014.<sup>23</sup> Ireland shows a similar trend with the share falling 14%. Moreover, the top 5 export destinations in IPS amount to 60% of their exports, whereas for Greece, the number is generally under 40% over the years. Thus Greece was not only initially diversified in terms of trading partners relative to the other three countries, it also diversified faster in the wake of the crisis.<sup>24</sup> Ireland is distinguished by the fact that 40% of its exports go to the UK and USA – the two countries that rebounded the fastest from the financial crisis. It also exports to other resilient non‐euro countries such as Switzerland and Ireland’s export to GDP ratio rose an amazing 32 pp during 2008‐14. Though Portugal’s most important trading partner is Spain,

> 23 Spain and Portugal differ from the other two in that the share of their exports going to the EU28 began a steady decline pre‐ crisis, but is still high (71% and 64%).

> 24 The top five trading partners for Greece are different from those of IPS, though all four countries share Germany as an important export destination and have among them, France, the UK, the US, and Switzerland in varying importance.

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