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A woman walks past an abandoned building covered with graffiti in Athens on Wednesday, June 6, 2012. (JOHN KOLESIDIS/REUTERS)
A woman walks past an abandoned building covered with graffiti in Athens on Wednesday, June 6, 2012. (JOHN KOLESIDIS/REUTERS)

Greek economy continues to crumble Add to ...

Greece’s economy shrank further in the first three months of 2012, shrivelling at a yearly rate of 6.5 percent against a backdrop of painful wage cuts, tax hikes and record unemployment.

The data, released on Friday, will add fodder to politicians campaigning against terms of an international bailout ahead of a June 17 parliamentary election.

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Painful budget austerity has deepened Greece’s economic malaise, turning voters away from mainstream political parties that backed a European Union/International Monetary Fund rescue deal.

Supporters and opponents of the bailout are running neck and neck in opinion polls for the June vote, seen as crucial for the country’s future in the euro zone.

The first quarter gross domestic product preliminary projection was based on seasonally unadjusted data. It topped a previous - 6.2 percent year-on-year flash estimate and follows a 7.5 percent year-on-year GDP decline in the last quarter of 2012, statistics service ELSTAT said.

A narrower trade deficit provided some relief but was not enough to make up for sharp falls in consumer and investment spending.

“The positive reading in exports and shrinking imports could not offset the decline in consumption and fixed capital investment,” said National Bank economist Nikos Magginas.

“Recessionary pressures will continue unabated in the second quarter. Uncertainty coupled with the labour market’s deterioration will further limit domestic spending while support from export sectors is seen weak,” he said.

Consumer spending fell 7.5 per cent year-on-year in the first three months of the year while gross capital investment plunged 21.3 percent as the cash strapped government struggled to shrink the budget hole.

The recession, now in its fifth straight year, weakened imports, helping to reduce the trade deficit by 41.9 per cent and partly contained the contraction in GDP.

The €215-billion Greek economy is expected to contract by 5.0 to 5.3 per cent this year, based on recent central bank and OECD forecasts.

The steep spending cuts and austerity required that is part of the €130-billion rescue package have deepened the economic downturn, making it ever harder for the government to meet revenue targets and reduce the budget gap.

The jobless rate hit a new record of 21.9 per cent in March, piling more misery on the electorate and fast approaching Spain’s plight, where unemployment has reached 24.4 percent.

“Most recent higher-frequency macro data signal no concrete improvement in the second quarter. Domestic political developments and the evolution of the euro area crisis will be crucial for the domestuc economic outlook in the second half,” said Eurobank economist Platon Monokroussos.

Other data released on Friday showed that weak domestic demand led to a further easing in consumer inflation to 1.4 per cent.

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