World Economy

Greece Bank Shares Collapse Masks Economic ‘Freefall’

Greece Bank Shares Collapse Masks Economic ‘Freefall’Greece Bank Shares Collapse Masks Economic ‘Freefall’

Greece’s banking stocks plunged for the second day in a row on Tuesday, dragging the main Athens index down in a graphic illustration of the country’s financial and economic woes.

There were signs, however, that the rout that took €8 billion off the market on Monday may be ending as already historically low valuations fall to levels at which investors start moving back in, Reuters reported.

The banking index comprising the four major lenders, was down 27.1%, managing to keep above the 30% daily loss limit at which trading is halted. It hit that limit on Monday.

This was partly because there were some buyers on Tuesday for National Bank of Greece and the smaller Attica Bank, both down 22%.

The overall Athens General Index, which shed a record 16.2% on Monday, was down a far more modest 1.4% on Tuesday. That suggested that without the banks, which hold a weighting of around 20%, the index would have risen on the day.

“Non-financial stocks were pressured a lot and we are seeing a rebound. They will likely balance out at a new level in the next few days, meaning volatility will ease,” said analyst George Doukas at Piraeus Securities.

Among gainers were gaming group OPAP, up 4.6%, and Aegean Airlines, 8.8%. Some other tourism-related companies also did well.

  Falling Off a Cliff

The Daily Telegraph said on Tuesday that the wider fall was catalyzed by the release of data showing manufacturers suffered their “worst ever month in the single currency” in July, with new business orders “falling off a cliff”.

The purchasing managers index registered a score of just 30.2. Anything below 50 represents contraction in the market and the score was the lowest in the 16 years the data has been collected, beating figures from the previous crisis of 2012.

The paper quotes Phil Smith, economist at Markit, who said the capital controls imposed by the government after talks with creditors broke down were largely to blame for the drop, as “bank closures and capital restrictions badly hampered normal business activity”.

Writing in The Times, Louise Cooper says that while the stock market falls have “grabbed headlines” the PMI fall was “far more significant” and could affect the size of Greece’s bailout. After data last week showed business confidence and consumer confidence are worse than expected the new figures show an “economy in freefall” and that could “increase substantially the financial aid required” from the €86 billion third bailout currently being discussed.

The Telegraph said the economy could contract as much as 7% this year.

For the Greek government the priority now is to secure the next bailout in order to begin the process of normalizing its economy. According to The Guardian, Greece is hoping for a new deal by August 18, which would see it avoid the need for further emergency ‘bridging loans’.