Greece’s recession eases as country nears end to six-year slump

Marcus Bensasson & Nikos Chrysoloras

Greece’s economy contracted at its slowest pace in almost six years, adding to signs that the country is set for a 2014 exit from its deepest recession in half a century as it emerges from its debt crisis.

Gross domestic product declined 0.2 percent in the three months through June from the same period last year, its 24th straight contraction, after dropping a revised 1.1 percent in the previous quarter, the Athens-based Hellenic Statistical Authority said in an e-mailed statement today. The contraction is the smallest since the third quarter of 2008 and beats the median estimate of a 0.5 percent drop in a Bloomberg survey.

“We’ve had a long-term positive trend,” said Christian Schulz, senior European economist at Berenberg Bank in London. “Whether the confidence can be strong enough to push Greece back into strong growth just yet is open to question. I think Greece will probably this year still have to rely on a positive tourist season.”

Greece’s six-year recession has been deepened by budget cuts tied to 240 billion euros ($321 billion) of loans from the euro area and International Monetary Fund, which have demanded a structural overhaul of the economy in return for bailing out the country’s public finances. The slump has cost Greece about a quarter of its GDP and left it with an unemployment rate of 27.2 percent.

Greece’s data isn’t seasonally adjusted and the country doesn’t publish quarter-on-quarter data.

Russian Tourists

Positive indicators include a rebound in economic sentiment, which in the first half of the year reached its highest level since the start of the crisis. The Association for Greek Tourism Enterprises said yesterday the country is on course to meet its target for tourist arrivals this year, even as the depreciation of the ruble amid European Union sanctions and the situation in Ukraine may mean that Greece will see 200,000 fewer Russian tourists this year than originally expected.

Still, retail sales fell 8.5 percent in June and industrial production dropped 6.7 percent in July, according to data from the statistics agency, showing Greece is not out of the woods yet.

The government’s hopes of exiting recession this year may also hit a stumbling block after Russia banned EU food imports in retaliation for sanctions stemming from the insurgency in Ukraine. Russia is Greece’s biggest trading partner, mostly because of gas and oil exports, according to data compiled by Bloomberg. The value of total trade between the two nations reached 9.3 billion euros in 2013, surpassing trade flows between Greece and fellow EU-member Germany.

Reform Agenda

“The priority now is for Greece to take forward the adoption and implementation of the important and far-reaching reforms set out in the program, which are needed to move Greece from stabilization to a sustained recovery in growth and job creation,” European Commission spokesman Simon O’Connor said in an e-mail.

The European Commission forecasts that Greece’s economy will expand 0.6 percent this year, its first annual expansion since 2007, and sees public debt peaking at 177 percent of GDP this year. The country’s primary budget surplus of 0.8 percent of GDP last year commits its euro-area partners to additional debt relief, provided it can convince them that it’s also abiding by the structural economic reforms.

The European Union’s statistics agency Eurostat will tomorrow report second-quarter GDP figures for the whole 18- country euro area, with 37 economists in a Bloomberg News survey expecting it to expand 0.1 percent from the previous quarter, when it grew 0.2 percent.