The Greek manufacturing industry fell at a record pace and collapsed in July amid capital controls and as uncertainty grows over the country’s future relationship with the Eurozone.
A manufacturing gauge by Markit Economics, known as the Purchasing Managers’ Index (PMI), showed that Greek manufacturing plunged to an all-time low of 30.2 in July, from 46.9 in June. A reading below 50 indicates contraction. Furthermore, a gauge of new orders tumbled to 17.9 in July, from 43.2 in June, also a new record low.
The last time any country had a similar reading for a PMI was during the 2008 financial crisis, The Wall Street Journal said.
Markit also said that the July survey showed the steepest drop in factory employment ever recorded in Greece.
At the end of June, the Greek government closed the nation’s banks and stock exchange, in addition to imposing capital controls in order to avert a collapse of its financial system.
Greek Crisis Deepens As Govt Introduces Capital Controls; Banks, Athens Exchange Said To Be Closed For The Week http://t.co/p0eTk8g9d0
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Markit Economics said that the survey of over 300 companies based in the Greek manufacturing sector blamed capital controls and a “generally uncertain operating environment” for the loss of business.
Phil Smith, an economist at Markit in London said:
Manufacturing output collapsed in July as the debt crisis came to a head. Factories faced a record drop in new orders and were often unable to acquire the inputs they needed, particularly from abroad, as bank closures and capital restrictions badly hampered normal business activity.
Demand was hit amid the heightened uncertainty surrounding Greece’s future, leading both total new business and exports to contract sharply, and it remains to be seen how long it takes these to recover.
Although manufacturing represents only a small proportion of Greece’s total productive output, the sheer magnitude of the downturn sends a worrying signal for the health of the economy as a whole.”
Economists at Barclays said:
“With capital controls likely to stay for a while, along with uncertainty as general elections are looming after the summer, confidence indicators are likely to stay in the doldrums, implying a very severe recession ahead in Greece.”
The weak factory data underscores the challenges that Greek Prime Minister Alexis Tsipras faces to revive his shattered economy, which has shrunk by around a quarter in the past six years.