The business climate continued to improve in H1.2014 (up by 37 points from its lowest point in H1.2012), posting - for the first time since the beginning of the crisis - a positive trend. This improvement is more evident among larger SMEs, as the majority of smaller SMEs still aim for survival.
Liquidity problems persist, with the pressure increasing mainly from the faster payment of suppliers. That said, liquidity conditions in H1.2014 are nevertheless better compared with H1.2013.
Αs regards the various sectors of SME activity, it is worth noting the following:
- Manufacturing reports the best expectations, with foods and chemicals standing out for their positive outlook.
- Services also report a pick-up in demand (mainly tourism and transport), while the service sector overall presents the biggest improvement in the business confidence index in H1.2014.
- Financial weaknesses (mainly net losses and overleverage) put a strain on trade SMEs, preventing them from being able to exploit improved demand conditions.
- Construction continues to be the weakest sector, as it is the only sector anticipating a decline in demand over the next 6 months.
SMEs active in Thessaloniki present the strongest picture, with higher resilience, better profitability and fewer liquidity problems compared to their peers in Athens and other regions. Overall, SMEs in other regions look weaker compared to those in the two main urban centers of Athens and Thessaloniki, although they have posted the biggest improvement in terms of export activity over the last two years.
Although the degree of export orientation has marginally increased over the last 5 years (9 per cent of turnover in 2013 from 8 per cent in 2008), the level of exports by the average SME has declined over the same period, reflecting the existence of obstacles preventing exports from becoming the driver for economic recovery. Specifically, only 1/3 of exporting SMEs have managed to increase their export level, while 15 per cent have actually reduced their share of cross-border sales.
- Food and chemicals manufacturing, tourism and transport stand out, as increased exporting activity moderated or even offset the declining trend of domestic demand.
- Regional SMEs presented an impressive export performance, as they significantly increased their export orientation over the last two years (with exporting SMEs producing 44 per cent of their sales abroad in 2013 compared with 24 per cent in 2012), pursuing targeted strategies to counter low domestic demand. By contrast, SMEs in Athens and Thessaloniki became less export-oriented over the same period, as expansion opportunities were the key motive for exports.
The relatively weak export performance of SMEs indicates that the significant improvement in cost competitiveness, achieved through the 50 per cent reduction in labor costs over the last five years, is not sufficient for exports to become the driving force behind recovery.
SMEs state that in order for the improvement in cost competitiveness to lead to an increase in exports, significant structural deficiencies need to be eliminated, such as (i) institutional inflexibilities, the most important being excessive bureaucracy and inefficiencies in customs procedures, (ii) poor access to special financing for exports (such as trade credit), and (iii) shortcomings in distribution networks and transport infrastructure.