Greek manufacturing plunges into an even deeper depression

Much is happening in Greece at this time and this morning has seen one of my biggest fears about the state of play in its economy reinforced. Not the plunge in the stock market in Athens which I will come to later but something which I have to confess was eye-catching this morning and even in the grim circumstances prevailing in Greece right now still had some shock value. From the Markit Purchasing Managers Index or PMI for manufacturing.

July saw factory production in Greece contract sharply amid an unprecedented drop in new orders and difficulties in purchasing raw materials.

If we consider the economic depression that has been raging in Greece then one is immediately troubled by the phrase “unprecedented drop” as in such circumstances one fears the worst. Also I note that the troubles in the banking sector are coming home to roost in “difficulties in purchasing raw materials” Back on the 27th of July I analysed this issue.

This of course is no way to run a banking system as we wonder how the credit supply from the Greek banks has been affected or not to put too fine a point on it, if there is one. My late father regularly used to complain that in UK recessions his business not only found it difficult to get new credit but saw existing lines reduced or withdrawn. Imaging the effect of such moves should Greek bankers prove to be like British ones!

Back then the newspaper Kathimerini was also expressing concerns.

“The banks are in deep freeze but the economy is getting weaker,” said one official, pointing to a steady rise in loans that are not being repaid.

Today we have seen a clear impact on the real economy.

The manufacturing outlook

The spot PMI reading was as low as I can recall seeing in this phase of the crisis.

The headline seasonally adjusted Markit Greece Manufacturing Purchasing Managers’ Index® (PMI® ) – a single-figure measure of overall business conditions – registered 30.2, well below the neutral 50.0 mark and its lowest ever reading.

We have become used to considering the low 40s as very weak and the high 30s as even worse but this breaks new ground for the Greece crisis. Not an outright low as Spanish manufacturing hit 28.5 in December 2008 (h/t Edward Hugh) but a low for a 16 year series for Greece

If we look into the detail the misery continues to build up.

Record contractions were registered for almost all variables monitored by the survey, including output, new orders, employment and stocks. There was also a record lengthening in suppliers’ delivery times.

Tucked away in the detail was something that you would not expect after all the supposed “internal competitiveness” gains ( otherwise known as wage cuts) in Greece and the generally lower level of the Euro.

A sharp and accelerated decrease in new export orders (also a series record) added to the overall reduction in new work.

The internal competitiveness gains were supposed to reinvigorate the Greek economy especially in price competitive sectors of the economy like manufacturing.

The downturn in manufacturing in July also has consequences for a country with an already elevated unemployment rate of 25.6% (April).

July’s survey signalled the steepest drop in factory employment ever recorded during the 16-plus years of data collection. The decrease was the fourth in successive months,

The official data

If we look back we see that there had been signs of trouble but nothing on the scale indicated this morning.

The Production Index in Industry (IPI), according to working day adjusted data, in May 2015 compared with May 2014 recorded a decrease of 4.0%. …….In the 5-month period from January 2015 to May 2015, according to working day adjusted data, the average rate of change of the IPI was 0.8%.

If we drill down further to the manufacturing section then 2015 had opened in better form with the year to May up 3.7% but May also saw a dip.

Manufacturing production decreased by 2.7%.

That left the index adjusted for working days and seasonality at 90.3 where 2010=100. If we look back to the 2005 level then we are just over 25% lower. Putting it in simpler terms it is a clear economic depression.

What about the banks?

The impact of the capital controls on the flow of credit to Greek manufacturing is clear from today’s PMI report.

Panel members commented on the impact of capital controls on demand…… Panel member reports indicated that companies commonly faced difficulties sourcing inputs due to capital restrictions and the limited availability of some items.

This seems to have been even worse for export finance.

Panellists mentioned in particular the difficulty in receiving items from abroad.

I would not be surprised if foreign companies were asking for cash on delivery rather than offering any form of credit as might be normal.

Whilst in some respects there has been a loosening of the capital controls noose around the neck of the Greek banks via some 1.8 billion Euros of extra liquidity (ELA) from the European Central Bank there are other issues. This morning’s opening of the Athens stock exchange brought this. From Bloomberg.

Piraeus Bank SA and National Bank of Greece SA sank 30 percent, the daily maximum allowed by the Athens bourse.

EFG Eurobank was better as it was only down some 29.8%! However if we move on from gallows humour we are reminded that such an environment must continue to restrict the ability of the banks to provide much-needed finance and credit for Greek industry and households. Meanwhile the rescue cavalry seems to have found itself locked in its barracks without a key. From Sigma TV.

The goal of the Greek government and the Bank of Greece is to, during 2015, finish recapitalising banks……According to press sources, the first stress tests (AQR) have already started and in October they expect them to finish.

Backing this up have been falls in the wider stock market with an opening drop of the order of 22% for the Athens General Index followed by a minor bounce to 18% lower on the day.


In terms of scale then manufacturing has declined in importance in what is considered to be the first world. So we need to put today’s numbers in that context. However they do give us a steer into what the underlying conditions are in the Greek economy right now and as we do so we find ourselves singing along to the Kaiser Chiefs and Lilly Allen.

Oh my, god I can’t believe it
I’ve never been this far away from home
And oh my god I can’t believe it
I’ve never been this far away from home

The current government has been in charge over a period where the economic depression affecting Greece has returned to the foreground. It has been a particular anti-triumph of those in charge in Greece ( some combination of the government and the institutions/troika) that even a brief flickering of improvement was soon smashed as the gears clunked back into reverse. They have managed this just as conditions have improved elsewhere in the Euro area in response to both a lower oil price and a lower exchange-rate for the Euro itself.

For clarity as people regularly ask here is a break down by Mckinsey in 2012 of what Greece does manufacture. Food processing is the largest element at 30% of Gross Value Added (GVA) followed by heavy industry at 26% of GVA and beverages at 10%.


16 thoughts on “Greek manufacturing plunges into an even deeper depression

  1. Hi Shaun

    I cannot believe that this news is a surprise to you, or to me and indeed many, many others. The downtrend within the Greek economy has been going on for some considerable time and I can’t see it being reversed any time soon. The logic of the Euro is internal adjustments to competitiveness, failing the facility to devalue the currency, and this is where it can lead.

    It is depressing to conclude from all this that we will probably get a humanitarian crisis in Greece before we get any sort of material improvement in the economy and this, to my mind, is a damning indictment of the EU and its works. The only glimmer of hope is that there will be civil insurrection before a humanitarian crisis and that this will shock the politicians into doing something constructive.

    This is no way to run things!

    • Hi Bob J

      It was not the decline which came as something of a shock. As you say that was only to be expected. It was the scale of the decline to a worse level than seen so far in the Greek crisis. After all percentage falls should be harder and harder to achieve now.

      As to a humanitarian crisis sadly there are signs of that already.

  2. “Food processing is the largest element at 30% of Gross Value Added (GVA)…and beverages at 10%.”

    The new VAT bands will destroy them too.
    It’s a disaster; the neo-liberals have salted the land.

    • Hi therrawbuzzin

      Exporters will be able to reclaim any VAT but I agree that there are downwards effects for those 2 categories probable from the new regime. Not only will many products be more expensive due to the VAT rises but austerity is likely to leave Greeks with even less money to pay for them.

  3. The institutions/troika are predicting growth in the Greek economy in the near future. With these figures you have reported, this can’t possibly happen, so the basis of their refinance and support is an illusion. Where do they get their figures from and are they ever scrutinized? How can Greece ever get out of this mess without default and Grexit?

    • Hi Foxy

      In official terms for the troika or as they are now called the institutions then next year is always bright. Even back in mid-2010 they predicted growth of 2% or so for Greece in 2012 for a very wide miss. But to look at it like that is the wrong way around. You see the growth numbers are produced to justify the debt to GDP ratio forecasts. Without some growth they look even more dreadful than they do with it. So in a cynical turn of events no-one actually believes the numbers.

  4. Hi Shaun,

    A good summation of today’s bad news.

    A critical element is now going to be how much long term damage the closing of the banks has caused to businesses, especially those that export. I suspect that many export customers have been frightened off by the dire situation and late deliveries and have found alternative suppliers, which will be further bad news for Greece. They will now have the additional work of trying to win back that business and may have to offer better terms to do so. There is no sentimentality in business as we all have to run them in the best way that we can for our own prosperity.

    I think an important lesson is that we all expect even bad governments to offer some basic professionalism and continuity to the day-to-day running of a country and this shows the great damage that can be done in a very short time when they can’t even do that.

    We will find out in the coming months if this is the low point for Greece or if government incompetence continues to make things worse against the backdrop of things generally improving in the rest of the Eurozone.

      • No, I meant what I said as IME there is plenty of humanity in business. Although there are bad employers for any sensible business person, employees are a valued part of your business. Again, IME public services are the worst employers, where I have seen many things that private industry would never be allowed to get away with. When you are the poacher and the gamekeeper, you can.

        • Then that humanity would make your prior post incorrect on two points.
          Firstly “winning back” suppliers should not be difficult, and secondly, they would not seek “better” terms.
          To return to previous business would not be charity, but what you describe is akin to beating down the price of a “Big Issue”; only the soulless would do it.

  5. Ah the perils of dealing with the Devil and the Empire !

    forsaken by their own elected leaders

    unable to collect taxes

    to be European means collection of taxes to pay for your services

    and the Empire of France and Germany will grind you down until you are fine dust

    wait until August and the IMF is paid off , then its all Euro debt ……


    Ps: I said the show would be good , didn’t mean nice though

    • Hi Forbin

      There was an old Doctor Who episode with Sylvester McCoy at the weekend which covered some of this ground. “The Greatest Show in the Galaxy” however

      ” But auditioning at the Psychcic circus carries a price. A fatal one for those who fail to entertain the mysterious family of three who always sit at the back of the stalls.”

      A mysterious family of 3?

      Meanwhile oil has plunged into yet another bear market with Brent Crude dipping below US $50 this evening.

    • Yes Forbin, insightful. Exit the IMF and the EU has to bear responsibilty for its own mess. At current rate of negotiations there will no deal until that conclusive arrangment.

  6. Hi Shaun,

    Check out the Target2 imbalances, Germany has a huge credit, reportedly 8 months worth of GDP and growing. Stein’s law says it cannot continue to grow indefinitely

    • Hi ExpatInBG

      We are assured by the technicians that there is nothing to worry about the build up of debits and credits there. Oh hang on.How many things have there been in the credit crunch era we have been told not to worry about, that have either exploded or imploded?

  7. Well Shaun, I’m still chomping away at currants from the western region of Greece, courtesy of Asda but I dont thinks its helping that much….

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