The post-Olympics blues

Greece’s Economic Climate Index (ECI) fell for the fourth time in the past six months as businesses and consumers have been disappointed by the economy’s prospects and the government action, or lack of it, the Foundation for Economic and Industrial Research (IOBE) said in its monthly review yesterday. The index, at 91.6 in December from 92.1 in November, remains below EU and eurozone averages (103.3 and 102.6 respectively) and significantly below the average for the 1998-2004 period. «The fall in the Greek ECI is due to the gradual erosion of the optimistic views, evident early in the year, of prospects in all economic sectors and among consumers. This decline accelerated after the Olympics, especially in the construction sector, but also in every other sector, albeit in a milder fashion,» the IOBE report said. Business expectations in the construction sector plunged to 59.6, from 64.5 in November, less than half the 1998-2004 average (128.3). The reason is that the sector’s firms see little business ahead and forecast a decline in employment. As for the reasons behind this pessimistic view, 34 percent attribute it to a lack of financing, while fewer blame low demand, bureaucracy and uncertainties over the legal framework regarding public procurements. About one in four businesses (24 percent), however, see no impediments to their activity. These are mostly firms active in private projects. Among those involved in big public projects, 42 percent complain of a lack of adequate financing. The Business Expectations Index in industry was at 94.1 in December, down from 95.5 in November, and the lowest level in the period since 1998. The index was negatively affected by inventory estimates, which declined for the third month in a row. Estimates on production and exports appear positive but significantly weaker than those made in November. The average months of assured production are 4.7, slightly up from November (4.6), but significantly below the early-2004 levels. Capacity utilization is also at low levels (72.9 percent in December compared to 73.9 percent in November). Estimates on future industrial prices are guarded: 80 percent of the respondents believe there will be stability in the coming months, while 16 percent forecast a rise in prices and 4 percent a fall. In consumer goods, there is an improvement in the business climate. IOBE attributes this to the decline in inventory and improved production prospects in the coming month. Only 29 percent of businesses believe that production is at lower-than-usual levels, compared to 64 percent who respond that it is at normal levels. By contrast, there is a significant drop in the Business Expectations Index in capital goods, to 101.3 in December from 106.2 in November, as a result of projections of low sales and a rise in inventory. The survey shows that the high expectations in the runup to the Athens Olympics have been partly deflated and that most businesses do not believe in a post-Olympic boom. This is in line with European Union forecasts of lower growth but contrasts with the government’s optimistic view, expressed in the 2005 budget, that growth will actually accelerate in 2005, to 3.9 percent.