Ongoing Contraction of Greek Manufacturing Sector
Manufacturing operating conditions in Greece continued to deteriorate in August as output and new orders fell at severe rates. There was a further marked reduction in staffing levels, while stocks continued to be pared.
Margins remained under pressure as input costs rose, but output charges were cut at a steep pace. The Purchasing Managers’ Index (PMI) edged slightly higher in August to reach a three-month high.
However, at 42.1, the PMI remained well below the 50.0 nochange mark to indicate another steep deterioration of operating conditions. Latest data marked the thirty-sixth consecutive month that a sub-50.0 reading has been recorded.
Output and new orders continued to fall at sharp rates during August. After accounting for the strong seasonal impacts of traditional summer holidays, panellists continued to suggest that poor credit conditions, weak underlying demand and the generally adverse business environment were having negative impacts on new order volumes.
Falling sales were not confined to the domestic market. August’s survey showed that foreign sales contracted for a twelfth successive month and at the steepest pace since the start of 2009.
In line with poor underlying trends in orders and output, Greek manufacturers again cut their staffing levels markedly during the month. Although the rate of contraction was the slowest for over a year, it was nonetheless marked as companies resorted to redundancies to lower capacity at their plants. Despite the reduction in productive resources, backlogs of work were lowered for a fiftieth successive month.
On the price front, manufacturers reported that a range of materials had risen in cost since July including plastics and wheat. The rate of total input price inflation accelerated to a four-month high, but panellists were unable to pass these cost increases on to clients.
Average output charges were lowered in August for an eighteenth successive month in line with competitive pressures and poor demand.
As output and new orders continued to fall in August, Greek manufacturers chose to lower their purchasing activity and continue to focus efforts on lowering any excess inventories. Stocks of purchases were again cut markedly as production requirements declined.
There was also evidence of forced destocking as delays in the delivery of inputs continued to be reported. August’s survey showed average lead times lengthened for a sixth successive month.
Paul Smith, Senior Economist at Markit and author of the Greece Manufacturing PMI, said: “Perhaps the biggest takeaway from the latest survey was a sharper reduction in new export orders – the steepest since January 2009. The much needed boost to sector health from external demand sources is showing no sign of materialising as we head towards the final months of 2012.”