Greek economy back in intensive care

Greek economy back in intensive care

With deflation entrenched, its industrial base shrinking and a tough new bailout to service, Greece's economy is heading for another fall with even those of its citizens lucky enough to be in work poorer than at any time since 2001.

Given that gloomy backdrop the main party leaders, campaigning for what looks certain to be close-run national elections on September 20, have used the economy – which enjoyed a rare growth spurt in the first half of 2015 – solely as a political weapon.

Alexis Tsipras, former prime minister and leader of leftist SYRIZA, has promised to fight to improve the terms of the third Greek bailout that he reluctantly agreed to in July and admitted will damage growth.

His main opponent, conservative New Democracy's Vangelis Meimarakis, has blamed Tsipras for mismanaging the economy towards another recession, a tactic that has boosted his approval ratings at his rival's expense.

But the two have been running neck-and-neck in polls – which suggests voters hold out little hope of an upturn in fortunes regardless of who wins.

“I don't see any relief in the short term, whatever the outcome,” said Costas Mallatos, 42, who works in the claims department of an insurance company in Athens. “I will still be burdened with the taxes I've been paying but I am afraid unemployment will go up. Employers are trying to cut costs, that's life under the bailouts.”

The economy grew 0.9 percent between April and June – the only full quarter in office for Tsipras's government – as consumer spending rose and exports edged up.

But economists say GDP will soon go back into reverse.

“We expect the economy to shrink (this year) by a bit less than 2 percent,” Angelos Tsakanikas, economist at IOBE think tank said, after data on Wednesday showed industrial output fell for the second month running in July and August marked the 30th straight month of year-on-year deflation.

Among factors impacting growth, capital controls were imposed in July, when the banks also stayed shut for a week, and the 86 billion euro ($99 billion) bailout will come with fresh taxes and pension cuts.

“Private consumption was a driver behind the growth in the second quarter, helped by tourism … There was also sporadic spending due to fears of haircuts on deposits related to a possible Grexit,” IOBE's Tsakanikas said.

With the danger of an exit from the eurozone and of a possible overnight devaluation averted for now, Greeks will be less inclined to splash out on consumer goods, especially given salaries are at a 14-year low.

Having risen year-on-year in the previous three quarters, the Greek wage index fell in the second quarter to 85.2, its lowest level since the same quarter of 2001, statistics office data showed on Tuesday.

After minimal growth in the third quarter, Tsakanikas expects the economy to contract again in the fourth, and further declines are widely predicted for 2016.

That signals a return to a recession that ran from 2008 and 2014 and augurs badly for an unemployment rate that, at 25 percent in May, is already the highest in Europe.

“There is no job creation … The jobless rate will rise after the seasonal boost from tourism fades,” Tsakanikas said, predicting a rise to 28 percent – a tenth of a percentage point above the record high reached in September 2013.


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