Greece’s manufacturing slump worsened in June as uncertainty ahead of a crucial general election that month weighed on business activity, leading to sharp drops in production and employment, a survey showed on Monday.
Debt-laden Greece is mired in recession with recovery not seen before 2014. Political deadlock after a May 6 vote led to a repeat election on June 17 amid heightened worries over the country’s future in the euro zone.
Markit’s manufacturing purchasing managers’ Index (PMI) for Greece dropped to 40.1 points in June from 43.1 in May, its weakest reading since February’s record low of 37.7 points and well below the 50 mark that divides growth from contraction.
“Whether the formation of the new coalition government helps to improve confidence remains to be seen,» said Markit senior economist Paul Smith.
“There can be no doubting that fundamental problems facing manufacturers – and for that matter the Greek economy as a whole – are inevitably going to take a long time to solve,» he said.
Weak domestic demand continued to weigh on order books with new export business declining at the sharpest rate in over two years as the global economy slowed.
Excess capacity and weak sales forced firms to shed workers again in June and offer discounts to attract demand. The rate of deflation was the steepest in three months.
“Ongoing difficulties accessing finance and demands from suppliers for cash payments were again noted by panelists in June, providing obvious negative implications for purchasing and production,» he said.
Greece’s 215 billion euro economy shrank by an estimated 6.5 percent annual pace in the first quarter. The central bank and the OECD see the recession continuing for a fifth straight year in 2012, projecting a 5 to 5.3 percent slump respectively.
Backlogs of work were down sharply in June with manufacturing firms reducing staffing levels for a 15th month in a row, while also cutting working hours or telling workers to take extended holidays.
Greece’s unemployment rate hit 22.6 percent in the first quarter, highlighting the pain of higher taxes and cuts in salaries and pensions which have suppressed domestic demand.