Greek manufacturing contracts for second time in four years

Greece’s manufacturing sector contracted for only the second time in four years in March, hit by political and economic tensions, a monthly survey of some 300 Greek companies showed yesterday. The seasonally adjusted purchasing managers’ index (PMI) fell to 47.5 in March from 51.3 in February, reflecting a sharp drop in output and a slump in demand, data from NTC Research, which compiles the index, showed. Most of the responses in the March 14-24 survey of some 300 Greek companies came in before the start of the Iraq war on March 20 and it was not clear whether that had any significant impact on companies’ responses. Even before the outbreak of war, the uncertainty and political tension surrounding the standoff had been hurting business sentiment, an NTC analyst said. «Concerns regarding economic instability, the current geopolitical situation, as well as a second month of unfavorable weather conditions were reported to have contributed to the decline in production this month,» NTC said. The previous drop in the index below the 50-point level, which separates expansion from contraction, occurred in November 2001, when Greece’s PMI fell to 49.2 in the wake of the September 11 attacks on New York and Washington. In the eurozone, the Reuters Eurozone Purchasing Managers’ Index slumped to 48.4 from 50.1 in February, when it briefly edged above the 50-point mark. NTC said employment was cut at the sharpest rate in the survey’s history while new business contracted for the second time since it began compiling the data in May 1999. Inventories of finished goods declined in March in line with the fall in production. Input costs for manufacturers continued to rise at a steady rate recorded in February with high oil prices and transportation costs mainly blamed for the increases. In the eurozone, most of the responses to the March 14-25 poll for the Reuters Eurozone Purchasing Managers’ Index came in before the Iraq war began on March 20 – with no indication available whether the later replies were noticeably different. The PMI slide was worse than the consensus forecast of 49.5. «Very weak indeed,» said Ken Wattret at BNP Paribas. «The key question would be: ‘Is this just a temporary phenomenon and could a quick resolution to the war lead to a rebound?’ The problem with that scenario is that a quick resolution to the war now looks increasingly unlikely.» The survey is likely to reinforce expectations that the European Central Bank will cut interest rates again within a month or two. The data «certainly increases the pressure on the European Central Bank to do something. I suspect they’ll keep their powder dry a little longer but the risk the market is taken by surprise by a rate cut this week has increased, given the data,» said Wattret. The equivalent US survey of manufacturers, produced by the Institute for Supply Management, showed the index slipping to 49 from 50.5 in February. (Reuters)