Greek Operating Conditions Continue to Deteriorate in July
Operating conditions in Greece’s manufacturing sector deteriorated again in July as output, new orders and employment all continued to fall at steep rates.
Liquidity and credit constraints remained apparent, placing a limit on purchasing activity and leading to a further sharp depletion of stocks. The Purchasing Managers’ Index (PMI) recorded 41.9 in July.
That was up from 40.1 in June, but still well below the 50.0 no-change mark that separates growth from contraction. The PMI has now registered below 50.0 for thirty-five successive months.
Panellists indicated another steep reduction in new orders received during July. The impact on market demand of the financial crisis and recession in Greece continued to be felt, according to the latest anecdotal evidence.
New export orders also continued to fall sharply during the latest survey period. The eleventh successive monthly reduction in export sales was reported to reflect tough operating conditions in foreign markets.
As new order volumes continued to deteriorate, manufacturers in Greece again pared back production. July’s survey indicated that the rate of contraction was again marked, despite easing since the previous survey period.
There was ongoing evidence of spare resources in the Greek manufacturing sector, with backlogs and employment both being cut sharply during the month. Staffing levels have now been reduced for fifty-one successive months with 20% of the survey panel indicating a reduction in payroll numbers during July.
Strong competitive pressures led to a further marked reduction in average output charges. There were also reports that a lack of demand had led to discounting and efforts to bolster sales.
Heavy cuts to output charges occurred in spite of a further increase in average input prices. Inflation has now been recorded for just over three years, and some respondents reported that suppliers continued to impose restrictive payment terms on purchases.
Greek manufacturers continued to report that liquidity and credit constraints had led to a further marked reduction in purchasing activity. Lower production and new orders also served to undermine the buying of raw materials and semimanufactured goods. Stocks of purchases were again subsequently run down to a sharp degree.
Finally, average lead times for the delivery of inputs continued to lengthen during July. The sharpest deterioration in vendor performance since January reportedly reflected stock shortages.
Paul Smith, Senior Economist at Markit and author of the Greece Manufacturing PMI, said: “Against the backdrop of recession and the ongoing financial crisis, the latest survey showed that operating conditions unsurprisingly remained tough for Greek manufacturers in July. Output, orders and employment all continued to fall, while the well
publicised problems of liquidity and credit constraints remained a considerable barrier to purchasing and general demand in the sector.
“Margins also remained under considerable pressure as input costs rose further at a time when competitive pressures and poor demand led to heavy discounting.”