Mon 03rd Aug '15
Greece's ravaged economy suffered a torrid month in July, as the imposition of capital controls saw manufacturers suffer their worst ever month in the single currency.
An influential survey of manufacturers (PMI) fell to a 16-year low, far surpassing the depths of the country's previous crisis in 2012. New business orders fell off a cliff, buying levels fell by their largest single amount in the survey's history, and Greek companies cited difficulties locating basic goods.
The government was forced to close down the banking system and limit cash withdrawals from June 28. Overall, the PMI index fell to 30.2 in July, from 46.9 in June before the controls were introduced. Any reading below 50 indicates contraction.
Greece is now set to fall into a deep recession this year, with analysts expecting a fall in output of around 7pc of GDP. The severely restricted liquidity has led to reports of some businesses resorting to the issuance of scrip currencies as firms retreat to semi-barter outside the banking system. Despite banks formally re-opening two weeks ago, limits on cash withdrawals remain in place.
Stock markets re-opened today for the first time in five weeks, but suffered their worst single day fall of nearly 23pc.
Phil Smith, economist at Markit said: "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."
“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.”
Greece proved to be the single biggest stain on the eurozone, which continue to expand albeit at a more subdued pace in July.
Manufacturing output across the bloc grew to 52.4 in July, with survey compilers Markit noting that there "was no conclusive evidence from survey respondents of events in Greece directly impacting operating performance elsewhere in the currency union’s manufacturing sector".
France however was the only nation outside of Greece to register a decline in its factory output, with its PMI reading falling to 49.6, down from 50.7.
Germany, the eurozone's largest economy and traditional manufacturing powerhouse, also slowed in July.
"Lacklustre growth in Germany continues to act as a brake on the overall region," said Chris Williamson, chief economist at Markit.