Greek Slump Deepens as Fraught Debt Talks Destabilize Demand

Greece’s economic slump is deepening, with manufacturing suffering its worst quarter in two years and the outlook for jobs deteriorating.

That’s the picture painted in a monthly report from Markit Economics, published hours after Greece missed a loan repayment to the International Monetary Fund, tipping the country closer to a potential exit from the euro-area currency zone.

Markit said its factory Purchasing Managers’ Index fell to 46.9 in June from 48 in May, signalling a 10th month of contraction. Output plunged the most in two years, while demand and employment also dropped. Among the euro-area nations tracked by Markit, all registered growth last month apart from Greece.

“In an otherwise broad-based upturn, Greece remained the outlier,” said Chris Williamson, chief economist at Markit in London. “Orders continued to collapse in a month of fraught discussions seeking to stave off default.”

Greece fell back into recession in the first three months of the year and data since then have pointed to a worsening economic situation. Failed talks between the country’s government and its international creditors over a new bailout have undermined sentiment, led to an exodus of cash and raised the prospect of a euro exit.

Markit’s euro-region gauge rose to 52.5 in June from 52.2 in May, above the key 50 level that divides contraction from expansion. In Germany, an index increased to 51.9 from 51.1, while France’s advanced to 50.7 from 49.4. The French number exceeded an initial estimate published on June 23. There was also “solid” growth in Spain and Italy, though at a slower pace than in May. The Spanish measure slipped to 54.5 from 55.8.

The Greek slump in demand in June was led by export orders, which dropped the most since February 2013. According to Phil Smith at Markit, that doesn’t bode well for the labor market in the country, where unemployment is already above 25 percent.

“With negotiations over a debt deal ongoing in June, demand was subdued,” he said. “Without a revival in orders, firms are likely to step up job cuts and look to reduce their excess capacity.”

For more, read this QuickTake: Greece’s Fiscal Odyssey

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