Economy is running out of steam

Retail spending in Greece fell sharply in April as households trimmed food bills in order to get by while credit expansion slowed another notch, indicating that the amount of money being pumped into the economy by banks is continuing to slow. Data from the Bank of Greece released yesterday showed that growth in Greek household borrowing slowed to an annual 7.3 percent pace in May from 8.4 percent in April. Local authorities have sought to keep the pace of credit expansion above 10 percent this year and a 28-billion-euro bank support package was devised by the government to keep the economy adequately funded. But the rate of credit expansion to the private sector is now seen slowing to 5 to 6 percent by the end of the year, Greece’s central bank chief said last week. The Bank of Greece said household loan balances grew by 338 million euros in May. Mortgages grew at a slower annual rate of 6.9 percent, or 186 million euros, from 7.8 percent in April. Consumer credit expanded by 8.4 percent, decelerating from 9.8 percent in April. Greece’s economy is likely to stall this year, achieving a zero annual growth rate, according to Economy and Finance Minister Yiannis Papathanassiou. The minister said earlier this week he expects the economy to recover toward the end of the year and revert to positive growth rates in 2010. On the consumption front, Greece’s retail sales by volume fell 15 percent year-on-year in April after an 18.3 percent drop in March, the National Statistical Service (NSS) said. Retail sales by receipts dropped 14.2 percent year-on-year in April after a 17.6 percent drop in the previous month. »Even spending on food is showing signs of decline,» National Bank economist Nikos Magginas told Reuters. «Consumption weariness will also be apparent in the summer months due to a drop in tourism activity and the deterioration in labor market conditions. Whatever hopes there are for stabilization are put back to the last quarter of the year.»