Greek factories slump as turmoil risks undermining ECB stimulus

Greek manufacturing shrank at the fastest pace since 2013 as uncertainty about the country’s political future mounted, threatening to undermine efforts by the European Central Bank to stimulate the euro-area economy.

A Purchasing Managers’ Index for Greece slipped to a 15- month low of 48.3. The measure has been below 50, the mark that separates expansion from contraction, since September. A final reading for the 19-nation currency bloc stood at 51 in January, London-based Markit Economics said on Monday. That’s up from 50.6 in December and in line with an estimate released on Jan. 23.

Subdued growth and a slide in prices aggravated by a slump in the cost of oil prompted the ECB to announce a 1.1 trillion euro ($1.2 trillion) quantitative-easing program on Jan. 22. Business confidence improved last month in anticipation of the move. Three days after the QE announcement, Greek voters elected Alexis Tsipras as new prime minister, whose Syriza party campaigned on renegotiating bailout terms and writing down the nation’s debt.

“Euro-zone manufacturing showed signs of pulling out of the doldrums at the start of the year, but the rate of expansion remained disappointingly meager,” said Chris Williamson, chief economist at Markit. There’s a “real possibility that the impact of the ECB stimulus could be compromised by uncertainty and instability arising from the unfolding political situation in Greece.”

Dual challenge

Euro-area manufacturers still suffer from weak domestic demand and subdued export performance, Markit said. Germany, France, Austria and Greece all reported declines in foreign sales in January, almost offsetting solid gains seen in the rest of the region, according to the report.

Professional forecasters surveyed by the ECB cut their 2015 growth forecast to 1.1 percent last month from 1.2 percent projected in November. They foresee inflation of 0.3 percent this year and 1.1 percent in 2016.

Average input costs for manufacturers fell at the fastest pace in 5 1/2 years last month, with the steepest drop recorded in the Netherlands, Germany, Austria and France, Markit said. The rate of decline in selling prices was “substantially less marked,” it said.

Markit will publish a gauge for services activity on Wednesday. [Bloomberg]