THE PERMANENT AUSTERITY PROSPECTS LEADS TO THE RAPID DECLINE OF THE ECONOMIC CLIMATE

As the Greek economy and the international environment stand at a critical crossroad with new challenges and uncertainty, small enterprises are called on to intensify their efforts for productive transformation in order to remain intact in these difficult economic times.

The triangle of uncertainty consists of the indeterminacy as to the completion of the first evaluation, the deterioration in terms of refugee flows and the difficulty in their management, and, finally, the probability of political instability. It is clear, that the consecutive burdens put on the Greek economy due to the delays in taking important financial decisions about pensions, taxes and non-performing loans, as well as due to the dilatory policy by the international community on the issue of refugees, creates a new climate of uncertainty and it adds a heavy burden on the already gloomy environment of decreased liquidity and high unemployment, in which small enterprises are called on to work and produce wealth. It is not sure that small enterprises which managed to overcome the bottleneck of capital restrictions -although not without significant losses- performing their role as the main factor maintaining local economic and social cohesion will be able to absorb new economic, social and political shocks. The coexistence of financial risks and the sociopolitical threats reinforces the climate of uncertainty.

Macroeconomic performance remains weak. Investment activity remains low, employment prospects are limited, while the excessive tax burdens make Greek enterprises uncompetitive. The economic dualism indicated in our previous survey remains since enterprises or members of enterprises switch to the informal sector of the economy, while many medium-sized enterprises consider the possibility of transferring their headquarters to other countries, following a “corporate refugee” road.

IME GSEVEE believes that the insistence on implementing the front-loaded austerity programme without any growth sign will lead to further decline in business activity. Within the next three months, developments must be launched and important initiatives must be taken that will trigger a virtuous cycle of growth, coupled with institutional stability, national unity and social cohesion.

Today, on the occasion of preparing the new Investment Law which is expected to be published in the near future, a structured production restructuring plan is imperative by mobilising all available forces of the Greek economy and simultaneously making the most of national sources, both private and public, and rapidly absorbing EU funds in sectors of national interest with a multiplier benefit. Priority for the entrepreneurial community of the country is the promotion of a modern institutional and organisational framework for financing and the provision of investment incentives. At the same time, small enterprises are encouraged to make use of all existing tools and invent ways to improve economies of scale through collaborative schemes, vertical integration, partnerships, massive promotion of local products.

The main conclusions of IMEGSEVEE survey carried out in cooperation with MARC SA on a sample of 1007 micro and small enterprises (0-49 employees) throughout Greece, in the period from 3 to 9 February 2016 read as follows:

A. OVERALL ECONOMIC SITUATION OF ENTERPRISES
1) The assessment of the 2nd half of 2015 confirms the concerns of the entrepreneurial community on an economic deceleration that followed the negotiation crisis in last July, the enforcement of capital controls and the beginning of the implementation of the 3rd front-loaded programme in the framework of the memorandum. 3 out of 4 enterprises report worsening of the economic situation (only 4.8% report an improvement), an indication that small enterprises have suffered disproportionate losses during these six months. Micro enterprises and the self-employed persons report the most significant losses.
2) The average decrease in turnover was around 20.6%, recording a decrease lower than expected, possibly due to changes in household consumption scheduling and temporary increase in consumption during the third quarter of 2015. Cumulatively for small and micro enterprises the total decrease since the beginning of the crisis and after 2010 weighted average reaches 75%. As to profitability, 21.1% of enterprises said that the balance sheet recorded profits in the year of 2015, compared to 43.1% which recorded losses.
3) The problem of liquidity and financing remains a significant factor that holds entrepreneurial activity back. The problem gets worse by the credit crisis and the weakness of restructuring non-performing loans. 3 out of 4 enterprises reported deterioration in the liquidity indicator.
4) Disinvestment indicator remains high. According to data from the Bank of Greece, the capacity utilisation rate still stands at 65%. As a matter of fact, for the next half shrinkage of new investment is anticipated for 1 in 3 enterprises, while only 3.4% of enterprises says it will proceed in new investments. This situation feeds into a new spiral of recession-disinvestment-underemployment of production factors.
5) As to other indicators, nearly 2 in 3 enterprises find that in this half too there has been decrease in demand (63.4%) and orders (69.7%).
6) Prospects regarding the course of enterprises during the next half are negative, since 61.2% of enterprises anticipate worsening and barely 9.4% an improvement. It is noteworthy that negative prospects are linked with the certainty that there will be new contractile policy measures that will reduce income and profits. It should be noted that the reduction in the number of enterprises creates terms for a better placement in the market for some enterprises of a specific size and sectoral structure. These presumably are newer (17.2% out of them anticipates improvement) and larger enterprises (13.7% out of them anticipates improvement).
7) The balance of positive and negative prospects still remains on the negative side in every economic indicator (-50.0 for turnover, demand, orders, liquidity), and the highest low value is shown in the prospect for liquidity indicator (-54.6).
8) Deflationary trends are expected to increase in 2016. 26.1% of enterprises anticipate a further decrease in prices level for goods / services provided, 61.6% of enterprises anticipate stabilisation, while only 4.3% anticipates an increase in prices. Estimates of national and international organisations for a stoppage in deflationary trends during 2016 appear not to be verified, based on both domestic trends and prices of the worldwide tradeable goods (oil, food). Low demand worsens deflationary trends.

Β. ENTREPRENEURIAL ACTIVITY
1) Achieving the goal of overcoming the crisis remains quite distant for enterprises. The figure of small enterprises that consider very or fairly probable to experience in the near future a serious operation problem to the extent at risk to close rose to the level of previous years, reflecting the actual survival problem that professionals and enterprises face. 52.2% of enterprises considers very probable the risk of closing down (compared to 46.3% in the corresponding survey of July 2015).
2) 18.1% of small enterprises face an immediate risk of operation stoppage during the next half. It is estimated that there will be a reduction of enterprises -mainly micro enterprises- by 21,000 during the next half. It must be noted that 31.4% of self-employed says that it is probable to stop or suspend operations. This phenomenon heralds the increasing concentration of market shares in fewer and larger economic players.
3) It is noted that according to IMEGSEVEE baseline scenario probable close-downs of enterprises which are in the "red" involve the risk of a loss of a total of 40-45.000 employment posts (employers, self-employed, salaried employees).

C. EMPLOYMENT- LABOUR MARKET
1) Despite the vague appearance of signs of a decrease in unemployment in 2015, the data show that small enterprises had significant losses in terms of employment -although less than expected- during the last half. Reductions of personnel during the last six months were reported by 10.3% of enterprises while increase of personnel was reported only by 3.7 %.
2) In absolute terms, the total loss of employment posts in small and micro enterprises during the second half of 2015 amounts to 45,000 (out of which 31,000 were in salaried employment) a figure partly confirmed by the flows of salaried employment published by Ergani, since it results that during the six-month period from July 2015 to January 2016 there was a negative balance between recruitments and lay-offs larger than the one during the corresponding period of 2014 (121,000 compared to 77,000). The largest losses were reported by small and medium capitalisation enterprises (with a turnover of 100-300 thousand euros and enterprises with 2-3 employees). This means that a two-speed economy framework is being formed with a gradual disappearance of enterprises with few employees (2-5) and higher distribution to enterprises of self-employed persons as well as to enterprises with more personnel.
3) The future employment flows are not expected to increase since the projection to the recruitment-redundancy ratio for the next six months is 2: 5. The trade sector records the worst performance with a ratio of 1: 5.
4) From the findings and IME GSEVEE elaborated projections it results that prospects for a decrease in unemployment are limited. If IME GSEVEE’s estimates get verified, then there is a risk of losing 14,000 to 18,000 additional salaried jobs during the next six months. Overall, it is expected that 52,000 to 55,000 employment posts will be lost, if we also count the losses resulting from the number of those who suspend operations (employers, self-employed).
5) The expansion of flexible employment schemes explains the partial absorption of the recessionary impact that the second half had on economy and enterprises. 45.2% (compared to 39% in the July 2015 survey) says that it has reduced working hours for some employees during the half.
6) It is repeatedly recorded that SMEs face difficulties in the timely payment of wages. 1 in 2 enterprises shows this problem without any prospect of easing the situation and 1 in 3 enterprises says that it has reduced the wages of employees in the previous six months. In addition, 1 in 3 enterprises says that it is very probable to reduce wages or working hours in the next six months. Given the lack of prospects for increased demand and investment, this practice remains an ultimate act for survival for small enterprises.
D. LIABILITIS - DEBTS
1) The large majority of enterprises with arrears has to do with their liabilities towards social security funds (28.1%). Considering the total number of debtors-natural persons (who may be in the same company, General Partnerships, Limited Partnerships), then 4 out of 10 "small entrepreneurs" in OAEE have arrears towards it, their social security fund.
2) Arrears towards Utilities remain at high levels, as more than 1 in 4 enterprises does not pay off on time. Today, more than 500,000 enterprises has debts towards electricity supply companies.
3) The figure of debts by enterprises towards the private sector is marginally increased (24.3% towards suppliers and 23.3% towards tenants), indicating the transfer of the total volume of private debt, estimated at over 200 bn, to the total economy (households and enterprises).
4) 14.5% of small enterprises has arrears towards banks. According to the latest data from the Bank of Greece, the overdue debts of enterprises amounted in September 2015 to 110 bn, out of which small enterprises exposures amount to 20 bn. This means that there is a considerable room for settling these loans in a systematic and effective manner, without significant losses and need for taking new provisions for the banking system.
5) The main problem facing enterprises today is the accumulation of tax liabilities and the stock of debt created, combined with the current high tax burdens. Despite the beneficial arrangements of 100 payments for tax and social security debts that in 2015 decreased the figure of enterprises which have arrears, their explicit inability to meet the high tax and social security liabilities in the next six months remains. 4 out of 10 enterprises are expected to be unable to meet their tax and social security liabilities for 2016.
6) In contrast, low participation in public procurement and the phenomenon of late payments by the state is a major problem affecting SMEs. For a 50.3% of small enterprises that has taken up a public deed there are still payments to be received by public bodies (local- regional authorities, hospitals, schools, army, nurseries etc.).

Ε. SPECIAL ISSUES ON SMALL ENTERPRISES- TRADE & ELECTRONIC TRANSACTIONS
1) For yet another year the financial results of the winter sales were disappointing, as only 5% of trades reported increased sales activities (61.3% reported decrease). Limited access of small enterprises to digital- electronic transactions also contributed to this situation creating concentration terms in certain sectors and sizes of enterprises.
2) Overall, in early 2016, 61.2% of enterprises said that they use e-banking services, while 39.9% of enterprises has POS terminals at its disposal. The figures, although higher compared with July 2015 (48.5% and 28.1% respectively), imply the low influence of digital technology to small enterprises, the lack of a framework of incentives by the state / tax authorities and increased costs of bank fees, ranging from the purchase to maintenance and use of terminal devices.
3) It is indicative that more than 37% of enterprises are charged with a fee of 1.5% or more on their turnover, which would amount to a multiple increase in VAT as it increases the cost per enterprise but retains the amount of tax payable at the starting levels.

F. SPECIAL ISSUE – POLITICAL CLIMATE/ COUNTRY’S PROSPECT
1) A small decline is noted in the proportion of those enterprises that believe that the prospects for growth are more favourable within the euro zone (50.4%) compared to those that find more favourable the prospects with a national currency (23.9%).
2) The above finding is related to the economic recovery horizon. The impression of the absolute majority of enterprises (over 50%) is that returning back to growth will require at least another five years (after 2020).
3) As regards the political climate, enterprises seem to reject the possibility of new elections, and prefer the 4-year parliamentary term to run on either by this government (15.2%), or by a governmental coalition of broader cooperation (44.5%).
* The survey presented is the first for 2016 carried out by the Small Enterprises’ Institute of GSEVEE in cooperation with MARC SA on a biannual basis since May 2009. It was carried out on a sample of 1007 micro and small enterprises (0-49 employees) throughout Greece, during the period from 3 to February 9, 2016 with the main aim to record the economic climate in micro and small enterprises in manufacture, trade, and services, which make up 99.6% of enterprises in Greece. The findings of this survey can be compared with those of previous surveys (May 2009 - July 2015). These surveys are the only tool available, throughout Greece, to record the situation and course for the largest part of the real economy in Greece. The primary economic and entrepreneurial prospects data are used by the European Association of Small and Medium-sized Enterprises for the elaboration of the European economic climate indicators and are comparable with other EU countries’ data.

As in previous surveys, so now, there is a clear record of the economic climate trends and monitoring of key indicators of small enterprises’ activity in the second half of 2015, while there is an attempt for an economic outlook for the first half of 2016.