Recession to continue into 2012

The 2011 budget is running a serious risk of missing its targets, owing to the deeper-than-expected recession that the country is experiencing this year.

The contraction of Greece?s gross domestic product by 6.9 percent in the second quarter, as announced last week, has led analysts and the government to revise their estimates of a 3.8 percent recession at the end of the year that the Finance Ministry and Greece?s creditors had planned for. Many now fear that GDP will shrink by up to 5 percent this year.

That would be the killing blow for this year?s budget, given that the target for the deficit (forecast at 7.6 percent of GDP) will clearly be too distant to meet. Finance Ministry officials say that whether the budget is executed depends on the recession, stressing that the signs are far from encouraging at present.

The only positive point is that the so-called troika of representatives of the country?s international creditors (the European Union, European Central Bank and International Monetary Fund) is not going to ask for new interventions in order for the deficit to go down. That?s because the troika is also responsible for the failed forecast, and in any case there are only a few months left until the end of the year.

The joint responsibility that the troika has may actually prove to be in Greece?s favor, as given the bigger-than-expected recession Athens should find it easier to receive the 8-billion-euro installment next month after the completion of the monitoring that began on Thursday: The troika?s low-level representatives met with Finance Ministry officials and continued their checks of the banking system. They will continue with visits to the ministry and the state?s General Accounting Office on Monday.

The negative developments in the Greek economy are clear to foreign observers, too. Credit Suisse suggested in a report that the shrinking of Greece?s GDP by 5 percent this year ?is not out of the question.? It added that due to the lower-than-expected collection of revenues, the general government deficit will rise to 10 percent instead of a targeted 7.6 percent.

Also on Thursday, a Wall Street Journal survey showed that analysts expect the recession to continue next year at a 2 percent rate, against a government estimate for growth of 0.6 percent.