Greece’s bruising fight with its international creditors sent economic sentiment to its lowest level in nearly three years in July and knocked manufacturing activity down to record lows.
The data was released as Greece opened its stock market on Monday after a five-week shutdown prompted by the imposition of capital controls. The bourse’s main index fell around 23 percent at the open.
Greek manufacturing activity plunged to the lowest level on record in July, going back at least 16 years. Significantly, Markit’s purchasing managers’ index (PMI) showed new orders plummeting.
“Manufacturing output collapsed in July as the debt crisis came to a head,” said Markit economist Phil Smith. “Although manufacturing represents only a small portion of Greece’s total productive output, the sheer magnitude of the downturn sends a worrying signal for the health of the economy as a whole.”
Greece shut its banks and imposed capital controls on June 29 to avert a bank run after Prime Minister Alexis Tsipras called a referendum on whether to accept stringent conditions from lenders on a new bailout.
The shutdown battered the economy, already weakened by a six-month standoff between Tsipras’ left-wing Syriza government and international lenders on the cash-for-reforms deal.
The economy has also begun to reverse the gains it was making before Tsipras was elected on a strong anti-austerity platform.
The European Commission predicts Greece will fall back into recession in 2015, with gross domestic product (GDP) contracting 2 to 4 percent having only just emerged from a six-year downturn.
Much of the emphasis over the past few years has been on Greece’s huge debt to GDP ratio. The lender-imposed focus has tended to be on lowering the debt rather than raising the GDP.
The IOBE think tank showed economic sentiment hit its lowest level in almost three years in July, hurt by banking restrictions and political uncertainty.
The index, which measures expectations in industry, services, retail, and construction along with consumer confidence, fell to 81.3 points last month from 90.7 in June, its lowest level since Oct. 2012.
“The real impact of capital controls, which are unprecedented for the modern Greek economy, is not easy to be assessed right now, because there are still ongoing,” IOBE said.
“But certainly, they are weighing down on already shrinking economic activity and will deepen recession.”
Markit’s PMI for manufacturing, which makes up about 10 percent of the economy, fell to 30.2 points last month, the lowest reading since the company began compiling the data in 1999. The index remained below the 50 mark that denotes growth.
New orders and purchasing activity dived as capital controls and concerns over the country’s future hit demand and forced manufacturers to cut jobs, the survey showed.
Restrictions on money transfers abroad have choked supplies needed by Greek businesses. More than 43 percent of manufacturers said they faced longer delivery times last month.