With the exception of petroleum refining, which is dominated by just two firms, activity in the Greek industrial sector in 2003 was rather low key last year, and this trend seems to be continuing in 2004, an annual study prepared by the Federation of Greek Industries (SEV) and business research and consulting firm ICAP says. Despite low interest rates, Greek manufacturing enterprises invest little while their sales are growing only slowly. The improvement in profitability is mainly attributed to falling labor costs and the rising value of the euro, which dampened price increases in raw materials. Bucking the trend and bolstering the overall picture is the dynamic growth of the petroleum sector, composed of Hellenic Petroleum and Motor Oil, which carried out an extensive investment program. Sales for manufacturing companies as a whole rose 4.5 percent at current prices, but only 2.8 percent without the petroleum sector. Gross profitability improved 6.9 percent, mainly accounted for by small and medium-sized enterprises; but for firms with assets greater than or equal to 30 million euros, profits grew more slowly than sales. The study attributes the overall profit growth to improvements in productivity, containment of labor costs and the appreciation of the currency. Total employment in manufacturing as a whole remained stable in 2003, but declined substantially among large companies. Investment declined further from 2002, registering a 5.3 percent drop – and a full 20.7 percent without the petroleum refining sector. Exports grew 4.5 percent, but fell 1.3 percent excluding petroleum products. Prospects for 2004 are mixed. Optimism regarding profits and employment have moderated in comparison with last year, but remains unchanged regarding sales. There is also optimism for exports and investment. Higher oil prices have tempered estimates concerning gross profit growth, while labor costs are not projected to rise substantially. Layoffs, particularly by small and medium-sized enterprises, seem to be the planned response to the rise in nominal salaries and cost of sales. The SEV study notes that companies’ borrowing conditions improved in 2003. Lending rates, including surcharges, stood at an average of about 7 percent, although big firms on the whole paid lower rates than small and medium-sized ones. High taxes and social insurance costs are listed as the major impediments to entrepreneurial activity. Bureaucracy and corruption combined are viewed as the most important obstacle by 30.4 percent of respondents. Bureaucracy appears to be a more serious obstacle to the larger companies. Inadequate infrastructure is reported as an obstacle by about 15 percent of them, while inflexible labor market regulations do not seem to be a particular concern to industries, especially small ones.