ECONOMY

Recession to be more severe than estimated

The recession this year will be deeper than the government?s estimate of 3.9 percent and will close 2011 at 4.43 percent instead, according to the Center of Planning and Economic Research (KEPE), while inflation is seen remaining at 4 percent.

The report, issued yesterday, suggests that the continuing decline of the real gross domestic product primarily reflects the drops in private consumption and public spending as well as the decrease in investment which cannot be fully offset by the contribution of rising exports.

The downturn in demand is supported by the high inflation rate, the uncertainty in the labor market, the reduction of the credit expansion to the private sector and the constant problems arising from the debt crisis.

In a report issued three months ago, KEPE had estimated an end-year recession figure of 4.12 percent. The shift is due to the revision of data by the Hellenic Statistical Authority (ELSTAT) and the deterioration of virtually all economic activity indices concerning the real economy during the first quarter of 2011.

Second-quarter recession is estimated at 5.62 percent, but that will gradually decline, KEPE estimates.

The report also refers to the paradox of a deep recession and a high inflation rate, dubbing it ?one of the curiosities of the current economic conjunction.?

This is attributed to the rise in energy prices, oligopolies in various sectors of the economy and the constant and major increases in taxes such as value-added tax and the special consumption tax.