Sep 2nd 2015: Greece's August PMI bounced back to 39.1 (from July's 30.2), it's a positive sign but is still low to show economic expansion

Athens, September 2nd 

·         August PMI bounced back to 39.1, from the historic low of July (30.2). Although PMI is still well below of 50 and indicates economic contraction for a 5^th month in a row, the sharp increase of PMI is in line with the positive developments such as the agreement of July 12^th agreement and its ratification by overwhelming majority by local Parliament.

·         another poll published showing that Greece’s elections as a neck-and-neck race. More specifically, market research Pulse showed a narrow gap of 1% between SYRIZA (left - 26%) and New Democracy (centre right - 25%); it also show a Parliament consisting of 8 political parties with Centrists Union (pro European but populists) replacing Independent Greeks out (eurosceptics nationalists). Pulse's poll is in line with all previous polls published last weekend i.e. MRB's poll showed a gap of 1.8% between SYRIZA and New Democracy and 8 party Parliament.

·         rupture within SYRIZA deepens; the majority of the Central Council of its Youth organisation (37 out of 64) submitted their resignations and left the party. Unconfirmed reports, indicate that the elderly Glezos who managed to be elected as MEP with record of votes (> 0.5 mios) in last year’s European Parliament.

·         SYRIZA blamed institutions for the application of 23% VAT on education; European Commission responded immediately that Brussels has not asked for the tax. It appears to be U turn of SYRIZA’s policy on the matter because the application of VAT is included in its new  pre-election program.

·         according to Germany’s Sentix research group, the likehood of the Eurozone breaking up fell to 17.2% in August from 26.5% in July. Needless to say that Greece represents the No1 country candidate for exiting the common currency region.

·         Greece’s unemployment fell to 24.99% in May (while youth unemployment was recorded at 51.8%) which is down from 25.6% a month earlier. At the same time, Eurostat published July’s data showing that Eurozone’s unemployment fell to 10.9% in July (from 11.1% in June) which is a 3 year low.

·         the announcement of Italy’s ENI that discovered off the coast of Egypt the ‘largest ever’ natural gas field found in Mediterranean Sea, upgrades Egypt’s geopolitical role. At the same time, this discovery combined with ones found off Cyprus and Israel increase pressure to build a gas pipeline which will carry East Mediterranean gas to Europe.

Risk assessment: In general, pre-election campaigns of Greek political parties show moderate rhetoric, so far. In addition, polls show that Greece’s electorate has accepted the agreement of July 12^th. This becomes apparent on three points: a) popularity of eurosceptic political parties (Golden Dawn – neo Nazi and KKE - communists) fluctuate close to previous elections results b) popularity of LAE, the new eurosceptic political party which was formed from SYRIZA’s rupture remains low, below 5% and c) eurosceptic political party ‘Independent Greeks’ which was SYRIZA’s ally in previous government won't succeed to surpass the 3% threshold and enter in Greece’s parliament.  

The unemployment data indicate that Greece's unemployment is far worse than average Eurozone's one. Greece should proceed fast on the implementation of structural reforms and restoration of political stability, in order to  catch up with other Eurozone countries.

The process continues as regards the evaluation of Greek Banks’ capital needs. The critical factor which will impact the calculation of Banks' capital needs is the impact on economy from the implementation of a) capital controls and b) structural reforms. In addition, the impact on local economy from developments in global economy such as price oil, value of euro/usd, China-centric crisis, timing of US rates hike etc. will play significant role to the evaluation of Greek Banks' capital needs.  

It is very important to mention that the process of the evaluation of Greek Banks is managed directly by Frankfurt, with Athens playing a coordination role.  In general, the recently published better than expected data related to Greece’s economic conditions (GDP, unemployment) combined by Banks' successful recapitalization which occurred in '14, indicate that Greece won’t need the total amount of 25 bios euros for Banks’ recapitalization.

Greece needs proceed fast in order to meet crucial deadlines such as a) formation a strong coalition government in September b) implementation of recapitalization of Greek Banks in October c) creditors evaluation in October. All these are prerequisites in order to restore confidence in economy and achieve debt restructuring in November