Greek industry picks up after difficulties in 2005

After a tough year in 2005, Greek industry seems to be on the way to recovery. Data released by the National Statistics Service (NSS) last week shows this as a distinct trend from the beginning of 2006. Turnover in industry has grown 20.5 percent this year and new orders in manufacturing are up 15.9 percent. NSS officials insist the improvement is not circumstantial and reflects a change in the real economy. The improvement mainly refers to the branches of intermediate and consumer goods, as well export-oriented industries in the sectors of metals, machinery and generally capital goods. The main branches of Greek industry are food, beverages, tobacco, chemicals, metals, mining and oil refining. This is also reflected in export data: chemicals, metals, construction materials, plastics, pharmaceuticals and animal feeds. The largest part of Greece’s invested capital is indeed in industry; however, its contribution to gross domestic product (GDP) is no more than 20-30 percent, while it accounts for an even smaller percentage of total employment. Greek industry is comprised of about 5,000 firms and their total annual turnover is about 40-50 billion euros. Of these, 15 billion is accounted for by the branches of food, beverages and oil, in about equal measure. Although prospects on the whole are encouraging, the overall picture is mixed, with some branches more profitable than others. On one hand, the food, beverages and tobacco branch seems to be facing difficulties and investment has declined 14.3 percent this year. Textiles and clothing and footwear have also stayed on a declining course regarding sales and investment. On the other hand, there has been a substantial recovery in chemicals, non-metallic minerals and basic metallurgy, where investment is expected to rise by more than the average for industry as a whole. A study by the Foundation for Economic and Industrial Research (IOBE) notes a decline in sums invested for the replacement of existing capital equipment, expected to intensify until the end of the year, and a decline in total expense, designed to expand productive capacity for already produced goods. In contrast, the share of investment designed to expand capacity for new products is increasing, as is investment for modernization of existing production methods. The prospects of Greek industry also depend on the European environment. There are optimistic forecasts for a rise in investment of about 5 percent in the EU as a whole and 6 percent in the eurozone. Most member states are expecting a rise in investment from last year. Hit by rising costs In keeping with other member states, Greek industry in 2005 faced a significant rise in the prices of oil and other raw materials which was not moderated by the rise in the euro/dollar parity, resulting in a denting of its competitiveness vis-a-vis producers using the dollar. According to the Federation of Greek Industries and business research firm ICAP, Greek firms also faced increases in other cost items in larger measure than in the rest of the eurozone. Such developments seemed to have led to a decline in industrial production and a deterioration of business expectations in industry. Financial statements published so far lead to the following conclusions: – In manufacturing, with the exception of oil refining, there was stagnation in sales and gross profits. Net income shows a small rise due to non-operational factors. – In energy and water supply, there was a small rise in sales and a significant deterioration in profitability, overwhelmingly accounted for by the performance of the Public Power Corporation and directly related to the rise in the price of oil. – There was a significant downturn in turnover and profitability in construction.