Greek shares nosedive as manufacturing data reveals economy in shock

The full extent of the damage caused by the Greek crisis was laid bare when the first day of stock market trading after five weeks of economic paralysis saw shares lose a sixth of their value.

Bank stocks bore the brunt of a wave of pent-up selling that eclipsed anything seen in the past three decades on the Athens stock market, with three of the leading Greek financial institutions losing the maximum 30% permitted in a single day’s trading.

The plunge in the stock market came as the first snapshot of the economy during the period when Greece teetered on the brink of leaving the single currency showed the manufacturing sector coming to a virtual halt last month.

With the banks shut, confidence shattered and firms unable to secure supplies from abroad, Greek industry endured tougher conditions than during the worst of the global financial crisis in 2008-09.

The Markit purchasing managers’ index (PMI) fell from 46.9 in June to 30.2 in July, the weakest since data for Greece was first collected in 1999 and well below its previous low of 37.2 points reached in early 2012. Any reading below 50 indicates that activity is contracting rather than expanding.

New orders – one of the components of the PMI – showed an even steeper decline, falling from 43.2 to 17.9. Philippe Waechter, chief economist at Natixis asset management, said the shock to the Greek economy had been “brutal and violent”.

The Athens stock market was closed in late June as part of the capital controls introduced by the Syriza-led coalition government to prevent a run on the banks and the flight of money overseas. The main stock market index was 23% down when business resumed on Monday morning as traders weighed up the damage caused to the economy and the possibility that there may be problems in implementing a bailout deal in which Greece has been forced to accept a fresh batch of tough austerity measures in exchange for financial help. Financial markets believe Alexis Tsipras may need to call a snap election.

Banking shares, which make up about 20% of the Greece index, were the hardest hit. All five shares comprising the banking index – National Bank of Greece, Alpha Bank, Piraeus Bank, Attica Bank and Eurobank – suffered double-digit losses including three over the 30% limit.

Phil Smith, economist at Markit, said: “Manufacturing output collapsed in July as the debt crisis came to a head. Factories faced a record drop in new orders and were often unable to acquire the inputs they needed, particularly from abroad, as bank closures and capital restrictions badly hampered normal business activity.

“Demand was hit amid the heightened uncertainty surrounding Greece’s future, leading both total new business and exports to contract sharply, and it remains to be seen how long it takes these to recover.

“Although manufacturing represents only a small proportion 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.”

Jonathan Loynes, chief European economist at consultancy Capital Economics, said the scale of the damage to the economy caused by the crisis and the imposition of capital controls “looks set to be worse than most forecasters, including ourselves, had envisaged”.

Loynes said he now expected quarterly contractions in the second, third and fourth quarters of 2015 of 2%, 4% and 2% respectively – leaving annual growth for the year at -4%, worse than the 3.3% decline pencilled in by the International Monetary Fund or the European commission.

“Perhaps more importantly, the very low starting point suggests that, even with a stronger quarterly performance, next year’s average growth figure could be even weaker at -5% or below, no doubt much worse than any figure envisaged until very recently by Greece’s creditors,” Loynes added.

Greece’s problems failed to prevent most other eurozone countries from enjoying a continued pick up in manufacturing activity last month. Every other country apart from France experienced industrial expansion, although the final eurozone PMI of 52.4 was down slightly on June’s 52.5. Markit said eurozone manufacturing was growing at an annual rate of 2%.