Deficit to widen as growth slows

The Economy and Finance Ministry cut its growth forecast for 2009 and raised its prediction for the budget deficit as the global turmoil continues to dent economic expansion. Economic growth this year is expected to be 1.1 percent, and 0.5 percent «in the worst-case scenario,» according to Economy and Finance Minister Yiannis Papathanassiou. The 1.1 percent figure is down from the 2.7 percent seen in the country’s budget, passed by lawmakers last month. The European Commission says the Greek economy will expand by just 0.2 percent. «We will be one of the five European Union countries to expand this year,» Papathanassiou said. The government’s focus is to fuel growth and curb spending, particularly in the public sector, while providing support to the Greeks most vulnerable to the downturn, he said. Under an updated EU stability plan submitted to the European Commission yesterday, the government also projected a budget deficit of 3.7 percent of gross domestic product (GDP) this year, matching the EU’s forecast, and 3.2 percent in 2010, lower than the EU’s 4.2 percent forecast. It forecast a 3.0 percent deficit in 2011. «Fiscal adjustment is our top priority. The main focus will be to cut waste in the public sector,» Papathanassiou said. As slower economic activity cuts government income and boosts spending, the European Commission sees half of the eurozone’s members’ deficits at above the 3 percent EU limit. Greece has an additional burden from weaker budget revenues straining public finances, with previous plans to reach a balanced budget by 2010 now dropped. Analysts say a rising deficit coupled with a high debt-to-GDP ratio – almost equal to the country’s 250 billion euro annual output – and a widening current account gap make the economy vulnerable. The government now expects the slowdown to push unemployment to 8 percent this year, from 7.5 percent predicted earlier.

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