Brussels sees smaller GDP contraction in Greece

The spring estimates on European economies issued on Friday by the European Commission point to an improved condition in Greek economy that will shrink by 4.2 percent this year against an original forecast for a 4.4 percent contraction, against a deteriorating background in the eurozone.

Greece will return to growth next year with its economy expanding by an estimated 0.6 percent.

Gross domestic product in the euro area will fall 0.4 percent this year, compared with a February prediction of a 0.3 percent, Brussels estimated. This follows a 0.6 percent contraction in 2012 and shows the region is heading for its first ever back-to-back years of falling output.

Cyprus in particular is destined for a far worse-than-anticipated recession. The Cypriot economy is now expected to shrink 8.7 percent, down from a prior estimate of 3.5 percent, in the wake of a euro-area bailout agreement that forced heavy losses on account-holders at the country’s two largest banks.

Greece is also projected for a 27-percent unemployment, on a par with Spain’s.

“High unemployment points to the need for continuing the course in structural reforms,” said Marco Buti, head of the Commission’s economics department. “The reduction in fiscal deficits is making headway in a differentiated way.”

At the same time, “intolerably high unemployment in vulnerable member states gives cause for a great concern,” Buti said.