Greece’s economy shrank 6.2 per cent on an annual basis in the second quarter, a slump that is expected to persist as the government scrambles to nail down billions in additional cuts to keep international bailout funds flowing.
Currently in its fifth consecutive year of economic depression, Greece is suffering record unemployment with nearly one in four Greeks without a job, undermining efforts to meet revenue targets and reduce the budget.
Athens is keen to convince euro zone partners and the International Monetary Fund of its will to bring an economic adjustment plan back on track before asking for modifications and more time to spread out the pain of more cutbacks.
But the fiscal drag caused by the pursued austerity policies coupled with liquidity constraints and lingering uncertainty is likely to keep recessionary headwinds in full force.
“We project GDP to contract by 7.1 per cent in 2012 and by 2.4 per cent in 2013, on the back of further significant declines in disposable incomes, rising unemployment and plummeting investment activity,” Eurobank economist Theodore Stamatiou said.
Greece’s jobless rate has already climbed to 23.1 per cent, with nearly 55 per cent of those aged 15-24 out of work, a desperate situation that fed into the popularity of anti-bailout parties in elections earlier this year.
The three-party coalition government that emerged after two rounds of polls is working to nail down €11.5-billion of savings and plans to revive a labour measure targeting 40,000 public servants for eventual dismissal.
Without the additional savings the government’s budget will still show a primary deficit of 1 per cent of GDP in 2014, well short of a targeted 4.5 per cent surplus to help stabilize debt.
The second quarter preliminary gross domestic product (GDP) estimate, released by statistics service ELSTAT on Monday, was based on seasonally unadjusted data and follows a 6.5 per cent GDP decline in the previous quarter.
Think tank IOBE expects the economy to shrink 6.9 per cent this year, a bleaker outlook than estimates by the Bank of Greece and the OECD earlier this year, which project a contraction of 5.0 to 5.3 per cent, respectively.
ELSTAT did not provide detailed estimates on the GDP components – consumption, capital investment, exports and imports – in the second quarter.
“It’s not a major surprise, we knew the Greek economy was continuing to struggle but hopefully it’s some sign that the rate of decline is starting to bottom out,” said Chris Williamson, chief economist at London research firm Markit.
Greece is behind targets and structural reform benchmarks agreed with international lenders who are demanding full implementation before official funding resumes.
Inspectors from the European Union, International Monetary Fund and European Central Bank troika have back an assessment of Greece’s performance and will report back in September on whether it deserves to get more payments under the 130 billion euro rescue package.
Weak spots where Greece has failed to deliver as planned include public sector job cuts, reductions in state-run pension benefits, the settlement of nearly 7 billion in state arrears and proceeds from privatizations.
The government changed the leadership team at the privatization agency aiming speed up the asset sales program which fell far below a target of more than €3.6-billion.
Public administration reform, renewed emphasis on curtailing tax evasion are also part of the reforms agenda.