Economy

Greek stock exchange plunge shows weak economy

Exchange plummets at reopen, shows lack of investor confidence in bailout results, analysts say

03.08.2015 - Update : 03.08.2015
Greek stock exchange plunge shows weak economy

By Andrew Jay Rosenbaum and Magda Panoutsopoulou

ANKARA

Greek stocks plunged on Monday, showing just how weak the Greek economy has become after the bailout negotiations.

Greek bank stocks dropped about 30 percent at the open on Monday, and the benchmark Athens Composite Index fell 23 percent.

The banks are awaiting recapitalization, as they have been short of funds during the bailout period; they remained closed for two weeks in July as the bailout plans were finalized.

"Greek banks have been hit considerably by events of this year," commented Craig Erlam, an analyst with OANDA, in a note published on the FXStreet website on Monday.

Recapitalization will dilute shareholder value for the Greek banks, and the recapitalization process depends on a measure adopted in the bailout for the creation of a €50 billion ($54.9 billion) investment fund. Up to half of that fund is intended for the banks, but its creation still depends on the outcome of the bailout negotiations currently underway between Athens and technical advisers from Greece's institutional creditors -- the International Monetary Fund, the European Central Bank and the EU.

But banks are not the only companies that have been hit by political and economic uncertainty. Other stocks that have suffered include: Athens Water Supply and Sewerage Company, down 30 percent; ELLAKTOR Group (infrastructure and construction) down 30 percent; Public Power Corporation down 30 percent; and Hellenic Telecommunications down 30 percent among many others.

Analysts pointed out that the bailout uncertainty has put strong pressure on the Greek economy.

"The prolonged negotiation process has sent Greece’s economy back to square ‘minus one’,” Konstantinos Venetis, an economist with Lombard Street Research, told Anadolu Agency on Monday.

"The real ‘Gr-accident’ happened early in the year, when the economy relapsed into technical recession. Prime Minister Alexis Tsipras’ misguided brinkmanship tactics subsequently led to a virtual activity freeze. The decision to hold a referendum, triggering the closing-down of banks, was the last nail in the coffin," Venetis said.

Analysts at Oxford Analytica told Anadolu Agency in an email that a serious recession is expected in Greece this year.

"The latest EU Commission forecasts point to a 4 percent output contraction this year, equivalent to some €8 billion ($8 billion), followed by a further 1.75 percent decline in 2016," the Oxford Analytica analysts said. 

"Yet even these could prove optimistic. Greece’s primary surplus has evaporated, state arrears have ballooned over €5 billion ($5.5 billion) and bank asset quality has worsened significantly, with non-performing loans at a greater value than 50 percent of GDP. Capital controls are easy to impose but very hard to lift, rendering deposit flight [down 30 percent since last autumn which is] extremely difficult to reverse," the analysts said.

"The intangible costs are equally, if not more, important. Private sector sentiment has been dealt a heavy blow, while the sizeable political premium looming over the economy is here to stay for the foreseeable future, and could well escalate in the near term," they added.

The Oxford Analytica analysts pointed out that the imposition of capital controls -- Greeks have not been allowed to withdraw more than €60 per day from bank accounts for nearly three weeks -- have dried up consumer demand.

Retail sales have declined more than 70 percent year-on-year, and sales of food and fuel, which had risen in the summer, have gone back to previous levels.

Export sales are off €240 million ($263.7 million) in the summer as well.

The proposed economic reforms are not likely to change all this, the analysts said.

All of this points to increased resistance to the bailout and its measures by a discontented population, the analysts said.

Anadolu Agency website contains only a portion of the news stories offered to subscribers in the AA News Broadcasting System (HAS), and in summarized form. Please contact us for subscription options.
Related topics
Bu haberi paylaşın