Output blues add to fiscal woes

Greece’s economy contracted by more than expected in the last quarter of the year, indicating that the country is facing broader economic problems rather than just fiscal woes. Gross domestic product fell 2.6 percent year-on-year in the fourth quarter, while the data for previous quarters were revised down, according to the National Statistical Service (NSS). The sweeping revision showed Greek GDP contracted by 2 percent in 2009 as a whole, worse than the government’s 1.2 percent estimate, making it the worst recession in nearly 30 years. The government projects 2010 GDP will shrink by 0.3 percent. Economists were expecting the Greek economy to have contracted at an annual 1.6 percent clip in the fourth quarter. «This obviously shows that it is not just a fiscal problem but an economic problem they have to deal with and therefore the fiscal tightening is likely to increase the downward pressure on growth,» Juergen Michels, chief eurozone economist at Citigroup, said. «It’s not easy to get out of this difficult situation that Greece is in.» The lower-than-expected growth figure is likely to push back any hopes for the economy to stabilize until after the second quarter of 2010, economists added. News of Greece’s deteriorating economic health comes a day after the European Union pledged support to help the country manage its massive budget deficit and public debt. An EU source was cited by Reuters as saying yesterday that eurozone finance ministers may discuss a financial support package for Greece on Monday, but they will not reveal details because there is a need to keep the market guessing. On a eurozone level, the 16 nations barely grew in the fourth quarter, with gross domestic product expanding by only 0.1 percent. Export powerhouse Germany turned in zero growth for the three-month period. Citigroup Global Markets said yesterday that Greece’s lower GDP figures may increase the budget deficit for 2010 to 12.8 percent of GDP. «Revisions to real GDP data translated into a similarly lower level of nominal GDP,» Giada Giani, an economist at Citigroup Global Markets in London, wrote in a research note. «This has implications for the fiscal ratios, which are now likely to be revised.» «We compute that by simply taking the new level of nominal GDP into account, the deficit-to-GDP ratio for 2009 may be lifted by 0.1 percentage point, from 12.7 percent to 12.8 percent, and the debt ratio by 1.2 percentage point, from 113.4 percent to 114.6 percent, compared with the official figures,» Giani said. Lehman-type crisis unlikely A day after the European Union pledged support for Greece, experts said yesterday the move will help ease concerns over the country’s finances, despite the lack of details made public. BlackRock Inc, the world’s biggest asset manager, increased its Greek bond holdings, betting the European Union won’t allow the nation to default, it said. The company has a so-called overweight position on Greek debt, holding more securities than allocated in its benchmark, in a strategy it will continue for «some time,» said Michael Krautzberger, co-head of European fixed-income. «They won’t allow a Lehman-type crisis,» Krautzberger, who helps oversee BlackRock’s assets of $3.35 trillion, told Bloomberg. Meanwhile, a team of equity strategists at Exane BNP Paribas said that speculators may next target the UK as concerns about Greece’s economy and other eurozone members ease. «The UK might be the next target of the sovereign debt vigilantes,» they said in a note. «The required fiscal tightening to restore financial stability is even more challenging than in Greece. The least painful way out of the UK’s fiscal crisis is currency depreciation.»

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