Greek economy to slump 5 pct this year, predicts IOBE think tank

Greece’s most influential think tank projected the economy would contract by 5 percent this year, taking a more pessimistic view than the European Commission and the IMF and casting a cloud over government efforts to meet fiscal targets.

Athens is set to apply more fiscal austerity to shore up its finances as part of a new rescue package it agreed recently with its euro zone partners and the International Monetary Fund to avert a chaotic default. Its continued funding will hinge on meeting targets.

The Foundation for Economic and Industrial Research (IOBE) also projected a further rise in unemployment to 20 percent this year, topping a record 17.3 percent in 2011 as the debt crisis continues to take a toll.

“It’s important to exit the recession and get the economy back on a growth path,» IOBE head Yannis Stournaras told reporters, urging a faster pace of privatizations to attract foreign investment.

IOBE’s growth outlook is more bleak than projections by the EU Commission and the IMF which see the 215 billion euro economy contracting 4.7 to 4.8 percent respectively.

Rising joblessness is hurting consumer confidence and overall business expectations with another sharp drop in private consumption expected this year, deeper than last year’s 7.1 percent slump.

Taking a critical view on the policy mix pursued so far, the think tank said the government had cut investment spending too sharply, steps to boost competition in markets were inadequate and the pace of privatizations proved too slow.

Reforms to improve economic competitiveness, a main policy objective to return Greece to sustainable growth, must be applied in all markets and closed professions, which could generate long-term benefits estimated at 17 percent of GDP.

“The privatizations program can become a growth lever, perhaps the most important one by attracting foreign investments,» Stournaras said.

Looking at exports, the tailwind that boosted Greek exports last year will likely wane as economic activity in the European Union bloc of 27 economies is expected to weaken.

The quarterly report forecast that inflation would slow further to below 1 percent this year from 3.1 percent in 2011 as demand continues to weaken.