Three-pronged recession warning
Greece is set for a deeper recession this year than what the government expects, the European Commission, Deutsche Bank and the Bank of Greece governor warned yesterday. The news came after the announcement that the fourth-quarter recession in 2009 came to 2.5 percent of gross domestic product, instead of the previously forecast 2.6 percent. Overall, Greece’s economy was hit by a recession of 2 percent in 2009. A Commission report that will be discussed at the next Eurogroup and Ecofin council meetings of Europe’s economy and finance ministers sees Greek GDP shrinking by 2.25 percent in 2010 against a government forecast of 0.3 percent. Economy Ministry officials now say the recession could exceed 1.5 percent. In its report the Commission also argues that the government’s measures are «sufficient» to trim the deficit by 4 percentage points (from 12.7 percent to 8.7 percent of GDP) this year, but notes there are some elements that put fiscal adjustment in question. These concern the greater-than-forecast recession, the higher cost of Greece’s borrowing, the «ambitious» nature of the revenue target, the usually inflated targets regarding efforts to curb tax evasion and the overestimation of Greece’s cash inflows from the EU. It further calls for structural measures by May 15 to make the economy more competitive, requests a description of the measures planned for cutting the deficit in 2011 and 2012, as well as a full report on the state of the country’s finances. Deutsche Bank suggests in a report of its own that recession this year may reach 4 percent in Greece, dropping to 2 percent next year and 1.5 percent in 2012, while unemployment will soar to 20 percent in two years’ time. Greece’s economic rebound will begin in 2013, DB warned, but suggested that fiscal consolidation is not impossible. Speaking to Reuters, BoG Governor Giorgos Provopoulos suggested on Thursday that the «bold» government cutbacks designed to curtail the country’s deficit would result in a 2 percent recession this year. But he expressed certainty that Greece will reduce its budget deficit to below 3 percent of GDP by 2012, as the government has pledged. «However, the fiscal consolidation package will also create conditions for sustainable growth in the future, something that would not occur in the absence of a credible consolidation program,» Provopoulos said.