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Greece puts spanner in euro zone works

Wednesday, July 01, 2015 - 02:10

Euro zone factory growth remained tepid as uncertainty around Greek debt talks - and the country's possible departure from the bloc swept across the region. As Ciara Lee reports there was one bright spot - French manufacturers have finally emerged from recession.

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With the country in turmoil it was no surprise that Greek manufacturing fell again in June - for a tenth month in a row. There was a sharp decline in export orders and production. What is perhaps more worrying is the impact the crisis is having elsewhere. The euro zone had been recovering this year - with PMI figures consistently above the 50 points that suggest growth. In June, manufacturing again hit a 14-month high at 52.5. But the new figure - in line with a preliminary estimate - was only up 0.3 points on May, and that's disappointing says FXPro's Chief Economist Simon Smith. (SOUNDBITE) (English): SIMON SMITH, CHIEF ECONOMIST, FXPRO, SAYING: "We're certainly not seeing the renewed growth that perhaps some would expect. Greece is a marginal factor in that but I think if the uncertainty carries on then it could become a less marginal factor in terms of the uncertainty it's bringing around in the euro zone." France at least saw factory growth confirmed at above 50 for the first time in 14 months, suggesting the region's second largest economy is finally in recovery. But it wasn't much of a champagne moment - with Germany, Europe's top economy, relatively weak and Italy and Spain both growing at a slower pace. Even Ireland - the fastest growing economy in the European Union last year - saw the weakest expansion in 16 months, both new orders and jobs. (SOUNDBITE) (English): SIMON SMITH, CHIEF ECONOMIST, FXPRO, SAYING: "If we let's say, in the one scenario, we see Greece exit the euro zone and you're then seeing funding costs rise in other markets such as Spain and Italy that feeds through into the banking sector making it harder for households and companies to get credit, then you would see a second round effect spread through into some of the other economies." Euro zone factories did raise their prices at the fastest rate since late 2013. And in a region still too close to deflation that was welcome. But the Greek problem remains - for the moment anyway. A new Reuters poll suggests there's now a 45 percent chance Greece will leave the euro - it was only 30 percent last week