Greek manufacturing back to modest growth, survey shows

Greece’s manufacturing sector returned to moderate growth in January after a two-month contraction, but next month’s general elections tempered demand, a monthly survey showed yesterday. The Greek Purchasing Managers’ Index (PMI) compiled from a survey of some 300 companies rose to 50.3 in January from 49.9 in December, rising above the 50 line that divides growth from contraction. «Panel firms generally cited fuller new order books as the main reason for the rise in output at their units,» NTC Research, that compiled the survey, said. «However, the expansion of new orders was only marginal, as clients partly delayed new orders on account of uncertainty about the results of the election in March,» it said, adding that new export orders grew for a ninth consecutive month. The March 7 vote, which pitches the ruling PASOK Socialists against the opposition New Democracy, is expected to be a close contest after popular Foreign Minister George Papandreou last month effectively took over the Socialists’ struggling campaign. NTC said staffing levels declined for a further month during January, on the back of continued cost-cutting programs, but the decline was less pronounced than in December. Costs continued to rise for the seventh month in a row, it said. «The rate of (input price) inflation was the sharpest in the current inflationary period,» NTC added. Eurozone slightly up In the whole of the euro area, the Reuters Purchasing Managers’ Index inched up to 52.5 from 52.4, showing the manufacturing sector growing at a stronger pace, thanks to buoyant worldwide demand, albeit not as fast as the consensus forecast of 52.9. The euro’s strength forced companies to cut jobs to stay competitive, a major survey showed. The survey of 3,000 companies showed overall manufacturing activity at a three-year high and robust growth in new orders. However, manufacturers cut more jobs than they created, seeking to hold down their export prices by boosting productivity. «Recovery remains on track in the eurozone, but it seems to be losing some steam and this is likely to be because of the strong euro,» said Elwin de Groot at Fortis Bank in Amsterdam. The euro hit a record high of nearly $1.29 on January 12, just before the survey was carried out, but has eased since. «There’s a big focus on cost reduction in the euro area,» said Chris Williamson, chief economist at NTC Research which compiles the survey for Reuters. «Order books are expanding and manufacturers are trying to meet those orders while simultaneously allowing staff levels to fall. That’s the big impact (of euro strength) that we’re seeing at the moment: the failure of this recovery to create jobs.» A Reuters poll last week forecast the European Central Bank will wait until late this year or early 2005 before raising interest rates from 2 percent, but a rate cut could be on the cards if the euro resumes its rise against the dollar. Saved by global demand The dollar’s weakness has helped US exporters and the comparable US manufacturing index hit a 20-year high at 63.4 in December. The Institute for Supply Management’s index of manufacturing activity rose to 63.6 in January from 63.4 a month earlier and against market expectations for a reading of 64.0, it was announced yesterday afternoon. Booming global demand is offsetting the euro’s strength and the forward-looking new orders index for the eurozone rose to 55.4 in January – its strongest showing since September 2000 – from 55.1 in December. Although the employment index was unchanged at 48.4, the output index rose to 54.6 from 54.5. «In spite of the strong euro, it’s worth reminding ourselves that the rate of growth in industrial production in the eurozone, as signaled by the output index, is in excess of 2 percent year-on-year, and perhaps quite significantly above 2 percent,» Williamson said. «If this setting can continue, 2004 could be a good year for continental Europe.» Even so, jobs remain a worry because a weak labor market deters consumers from spending. The manufacturing survey showed domestic demand for consumer goods remained relatively weak in all the major eurozone economies – especially Italy. An accounting scandal at global dairy group Parmalat has hurt many Italian savers and Williamson said that, combined with transport strikes and the strong euro, was in turn hurting consumer goods makers. «It’s a triple whammy,» he said. Intense price competition The Italian PMI eased to 51.1 from 51.9 and the Italian jobs index slipped back into contraction from growth. The overall index for Germany was unchanged at 53.0, but the French index showed stronger growth at 53.5 from 51.9. Williamson said capital goods exports, particularly from Germany, were shielded from euro strength by strong demand from US and Asian manufacturers for specialist European plant and equipment. French manufacturers were also benefiting from relatively strong domestic demand for consumer goods. But manufacturers in Asia and elsewhere are creating intense price competition for eurozone companies both at home and abroad, especially in the consumer goods market. At the same time, eurozone manufacturers are paying more for raw materials. Even though most of these imports are dollar-priced, euro strength is failing to fully offset price rises driven by supply shortages, particularly for metals. The eurozone input price index rose to 54.6 in January – the highest since April 2003 – from 53.6 in December. All this pressure to contain costs looks set to keep a lid on manufacturing jobs growth in the eurozone. «We don’t expect any significant growth of employment in the foreseeable future, say for the first half of this year,» Williamson. «We’d hope that by spring it might have stabilized; job-cutting will have halted.» (Reuters)