Greek Entrepreneurship - Industry (May 2018)

Greek industry looks set for faster growth over the next 5 years

Gradual recovery of the key Greek industrial activity indicators (industrial production and confidence indices) reflects improved demand for Greek products (turnover growth of 3.4 per cent in 2017 vs 0.2 per cent in 2016), mainly in foreign markets (7 per cent in 2017 vs 1.5 per cent in 2016). The growth in demand boosted capacity utilization of Greek manufacturing to 68 per cent in 2017 from a low of 64 per cent in 2015.

Capacity utilization is an important indicator for the investment strategy of Greek industry over the past 20 years (with a correlation factor of 70 per cent). Following the 2015 low (investment intensity, i.e. annual investment flow to accumulated stock, 8 per cent and capacity utilization 64 per cent), industry is already on the rise (investment intensity 11 per cent and capacity utilization 68 per cent in 2017), reflected in increased investment in mechanical equipment (average annual growth of 14 per cent in the last two years). Note that current investment flows marginally surpass the minimum level required for necessary replacement (i.e. to keep the net value of machinery constant) – thus displaying signs of a healthy momentum for the first time since 2008.

According to our estimates, demand dynamics will strengthen over the next 5 years (with turnover rising at an average annual rate of 4 per cent to 5.7 per cent), as domestic demand will gradually recover to more normal levels (average +3.7 per cent p.a. over the next 5 years, vs -4.2 per cent in 2009-2017). As a result, capacity utilization will reach 73-76 per cent in 2023 (vs 68 per cent in 2017), thereby approaching pre-crisis levels (77 per cent in 2000-2008).

Assuming that the investment behavior of Greek industry players will follow the usual response mechanism of the past 20 years, the level of investment intensity in machinery should approach 14-16 per cent in 2023 (vs 11 per cent in 2017). Under such circumstances, annual investment will be in the range of €1.2bn to €1.4bn (reflecting a 7-11 per cent average annual growth rate) -- bringing Greek industry’s stock of machinery to 2011-2013 levels.