Greek manufacturing paradox: Domestic demand drives growth amid inflation and falling exports

Greek manufacturing saw a strong rebound in May, with production, new orders, and employment accelerating. The sector's growth, measured at 53.3 index points, up from 52.4 in April, marks one of the highest improvement rates in the past year and significantly exceeds the long-term average. This expansion, however, is primarily fueled by domestic demand, as export orders have been declining for four consecutive months.

The economy faces an imported slowdown due to the international crisis, yet domestic consumption remains robust, even with rising product prices. Industries have passed on a significant portion of raw material cost increases to customers, raising selling prices at the fastest rate since October 2022. This surge in prices mirrors the peak of the previous energy crisis when inflation reached double digits.

While tourism might offer some explanation for increased domestic consumption, its impact remains uncertain. The idea that this trend improves the country's trade balance by reducing imports and boosting domestic production is also flawed. Most raw materials used by Greek industry are imported, meaning the trade balance is not improving. The country appears to be celebrating an industrial recovery that relies on consumption and is fed by imports, while exports lose momentum. This paradox warrants deeper concern rather than celebration.