Eurobank: Signs of slowdown in economic activity from high-frequency indicators

Operating conditions in the manufacturing sector in Greece worsened in July, worsening for the first time since February 2021, while economic sentiment also fell to a 15-month low, according to S&P Global’s manufacturing PMI and IOBE’s economic sentiment index, as notes Eurobank in its weekly economic analysis.

According to the bank, these performances, similar to those in the Eurozone, reflect: first and foremost the gradual diffusion of the disruption of the energy crisis and geopolitical tensions in the Greek economy and secondly, the adjustment of the economy to milder growth rates after the sharp recovery marked by the opening of socio-economic activities in the 2nd quarter of 2021. Based on the latest available data, real GDP in Greece in the 1st quarter of 2022 was strengthened by 3.0% compared to pre-pandemic levels (0.8 % in the Eurozone).

In detail, the manufacturing PMI decreased to 49.1 points in July 2022 from 51.1 points in June 2022. The last time this index had a value below the extension-bend line of 50 points was in February 2021, i.e. month that stricter measures were taken during the 2nd lockdown.

According to S&P Global’s press release, the deterioration of operating conditions in the manufacturing sector in Greece came from the components of production and new orders, the levels of which due to inflationary pressures contracted at the fastest pace since the end of 2020. Reduced production needs and new orders led to marginal employment growth at the slowest pace since February 2021. In addition, purchases of inputs and inventories of finished goods fell.

Finally, in the July 2022 survey, two positive elements were recorded for the manufacturing sector in Greece. The first concerns the panel members’ expectations of output levels in the coming year. Although below the long-term average, they were improved on expectations of lower inflation and higher sales.

The second concerns a slowdown in the rate of cost overruns resulting in a softer rate of increase in manufacturers’ selling prices. This is also reflected in the course of the HICP.

According to Eurostat’s preliminary inflation estimates for July 2022, the annual change in the HICP in Greece stood at 11.5% (8.9% in the Eurozone) from 11.6% in June 2022. This result is linked to the slowdown in the annual rate of increase in energy prices. For the first time since June 2021, annual inflation in Greece moved downwards, albeit marginally, from month to month. The monthly rate of change of the HICP in July 2022 was similar to that of previous years, while for the months of January to June 2022 was much higher resulting in continued strengthening of annual inflation.

Nevertheless, it is early and the indications are not enough to claim that the July 2022 observation will be the turning point for the path of inflation in Greece.

In addition to the deterioration of operating conditions in the manufacturing sector in Greece in July 2022, the IOBE economic sentiment index fell to a 15-month low in the same month. Specifically, it decreased to 101.1 points from 104.1 points in June 2022. Regarding the individual confidence indicators that make up the economic climate index, industry, services, consumers and construction recorded a deterioration, while retail trade improvement.

It is worth noting that the consumer confidence index is already at a 5-year low since April 2022, an element that perhaps explains to a certain extent the contraction of the volume index in retail trade by 4.9% on a monthly basis and by 3.6% on an annual basis May 2022.