ECONOMY

OECD sees recession above 6 pct

Any looser-than-agreed application of the memorandum between Athens and its international creditors would increase the risk of a default, the Organization for Economic Cooperation and Development warned in its annual forecast published on Monday.

The organization expects the Greek economy to shrink to a greater degree than government estimates this year, amounting to 6.1 percent of gross domestic product against a 5.5 percent government forecast. The reasons the OECD gives for the further deepening of the country?s recession is that it expects a decline in exports.

Next year it sees the economy shrinking at a 3 percent clip, with Greece returning to growth in 2013, but only at a rate of 0.5 percent.

The OECD notes that fiscal streamlining was weaker this year, as the deficit will come to 9 percent of GDP and is seen declining to 7 percent next year without the beneficial impact of the 50 percent debt haircut yet to be taken into account. In a similar vein, the public debt will climb to 177.1 percent next year from 160.9 percent this year and reach 179.7 percent of GDP in 2013.

Unemployment will also rise, ending the year at 16.6 percent, increasing to 18.5 percent in 2012 and to 18.7 percent in 2013. However, inflation is expected to contract from 3 percent this year to 1.1 percent in 2012 and just 0.2 percent in 2013.

Given all the above, the OECD has issued a number of recommendations to the Greek government that are broadly in line with the proposals that the Bank of Greece offered last week in its monetary report.

The OECD calls for a drastic cut in public spending and for a containment of tax evasion (but without the imposition of new taxes), for stricter monitoring of fiscal targets to restore confidence, for the immediate liberalization of so-called closed-shop professions, for well-targeted interventions in the labor market to make it more efficient, and for Greek banks to seek out options for mergers and cooperation with foreign lenders in order to secure cash flow for the country?s economy.