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The new orders index in industry in Greece collapsed by 15.8%

21 December 2011 / 18:12:30  GRReporter
2450 reads

Victoria Mindova 

The new orders index in industry in Greece fell for another month in a row and decreased further by 15.8 per cent in November 2011, reported the National Statistical Service of Greece. The main reason for the drop of this indicator is the collapse of domestic demand. Lack of liquid capital, high duties to the public sector and low turnovers have affected production, and trade in industrial goods is declining slowly and gradually. Another reason for the decrease in orders is lower export demand. After the end of the summer, the eurozone entered one of its most difficult periods, which undoubtedly made the external partners of Greek producers reduce the costs for orders until it becomes clear how the debt crisis will develop and what consequences it may have in different countries.

Significantly, the new orders index in industry jumped by 16.9% for the same period last year in comparison with the data from 2009. Analysts report that last year's increase in the interest in the Greek production is mainly due to the reduction of wage costs in the private sector, which was introduced after signing the first Memorandum of financial aid in May 2010. Only this step was not sufficient to regain the lost competitiveness of the Greek production. The Institute of Diplomacy and International Relations has studied the reasons for the current state of the local economy and sought the opinions of various experts able to analyze the problems from different perspectives.

Salaries in the public sector have increased much faster compared with those in the private sector. The pace of this increase is much greater than the private initiative is able to stand, noted Aristos Doksiadis - economist and author of "Institutions and attitudes: the base of economy", who spoke at the invitation of the Institute of Diplomacy and International Relations about the roots of problems in the Greek economy. He explores the Greek society and the way formal institutions operate as a catalyst for speculation and creator of economic protectionism. According to him, the cumbersome public administration and political system, which for years have been serving specific private interests rather than society have generally set the prerequisites for the development of the informal economy and the loss of competitiveness of Greek products on international markets.

The need for balance between the private and public sector salaries has caused the increase in salaries outside the public administration and many private companies have not withstood the pressure as result. "Remuneration should follow productivity," a rule which has not been observed in Greece in recent decades. Doksiadis found that some economic sectors, which are non-productive, have benefited from the stringent regulations in the country for many years. This policy has seriously hurt the competitiveness of Greek production, which at the same time, has contracted seriously.  

Aristos Doksiadis divides economic sectors by two criteria - productivity and capacity of enterprises, which are dominant. Public enterprises and the service sector are the most privileged and have the lowest productivity. They represent about 22.5% of the economic activity in the country, enjoy high protectionism, but their production cannot be traded on foreign markets. In 1992, the sectors producing commodities were 38% of the local economy. This percentage has fallen to about 25% 15 years later. "The change from commercial to non-commercial companies is a trend that was observed in all industrialized countries in the post-war period, but it happens differently in different countries." In Greece, however, this change is quite drastic and has a negative impact.

"If you look at the data from 2007, producing sectors with large firms employing more than 250 people, like the companies in the shipping and processing industries, are only 2.5% of local economy. If we add to them the companies employing over 20 persons, this percentage remains extremely low or only 6.5% of the total economy of the country." Small companies producing commodities are about 22.7%. They operate mainly in tourism, agriculture and include small family companies producing small goods. The companies that do not produce goods for trade and have small capacity, sole proprietorships and small traders, specialists in the field of services, technical support and household represent 52.2% of the local economy.

The overall picture of the Greek economy even before the height of the global economic crisis shows that the country has lost much of its competitiveness but nothing was done to prevent further collapse. "Stable development can be achieved only if the trend established in recent years changes forever," said the economist. He stresses that entrepreneurship should turn back to the manufacturing sectors; the jobs in non-manufacturing sectors should not be more than 15% of total employment. Moreover, the Greek companies need consolidation. Small companies that produce goods suitable for trading on the international market cannot have a strong presence, because they are not able to meet the volume and to increase profits subsequently. Even if they are profitable, they do not contribute significantly to economic growth.




Tags: EconomyMarketsIndustryOrdersDropGreece
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