Wednesday, 16 April 2014

Greek manufacturing: a couple of good signs beneath the surface

Greece’s industrial production index has risen in the past 3-months something that hasn’t happened since 2007. Of course claiming that Greek manufacturing is out of the woods would be wishful thinking. As it is always the case with Greece nothing is as straightforward as it seems.

Focusing on manufacturing, beyond the two consecutive months of rising production, the most encouraging sign in my humble opinion is the number of sub-sectors currently in expansion territory, something also not witnessed since 2007.

source: Eurostat, own calculations

A good question is where is this coming from?

source: DG ECFIN Industry Survey

If one believes in survey-derived data, exports order books are stagnating, while the overall picture seems to be slowly improving which leads us to the conclusion that the past few months spike is driven by the internal market.

source: DG ECFIN Industry Survey

Production expectations appear to be rising as well but selling-price expectations do not exhibit the same upward trajectory.  This could mean that any growth in turnover could be more subdued. 

Other than that the sector appears to suffer from the same problems as it did a few months ago (at least according to the survey respondents).

source: DG ECFIN Industry Survey

Financial problems remain, meaning that banks are still very strict when it comes to lending.  

One could take a look at the charts above and think "good, the internal market appears to be stabilizing". Don't get me wrong that is undoubtedly a good thing. What doesn’t make me very comfortable is the fact that Greek politics remain on shaky ground and above all what would happen to the sector should we enter a new bout of turbulence. I won’t state the obvious, i.e. that the sector lost a very good opportunity to internationalize and diversify its client base since many people could claim that the banking crisis made that very hard. I will give the proponents of that the benefit of doubt but, for what is worth, I am not overly convinced by that argument.