GDP drop not so bad, worse ahead

Greece’s economy shrank less than was expected in the first three months of the year but the economy is likely to move deeper into recession this year with the government’s recent austerity measures. Data released by the Hellenic Statistical Authority yesterday showed that the country’s gross domestic product contracted 0.8 percent in the first quarter compared to the last quarter of 2009, better than the 1.4 percent drop expected by most economists. The overall eurozone grew for the third quarter in a row – by 0.2 percent in the last three months. Economists said they expect the pace of contraction in Greece to accelerate for the next two quarters as the austerity moves, coupled with higher inflation and job losses, lead to a sharp decline in households’ disposable income. In return for emergency aid from eurozone nations and the International Monetary Fund, Athens has committed to deep budget cuts, including cuts to civil servants’ wages and pensions. The Greek economy shrank by 2.3 percent year-on-year in the first three months of 2010, the data showed, also less than the 2.7 percent drop forecast by economists. Economic activity in Greece has been slowing since the beginning of 2008. For 2009 as a whole, the Greek economy shrank 2 percent, worse than the government’s forecast of a 1.5 percent contraction. Experts pointed to government reforms aimed at tapping the black economy as starting to pay off. «The better-than-expected data for gross domestic product, both month-on-month and year-on-year, are the result of a more-successful-than-projected capture of the black economy,» Constantinos Vergos, analyst at Cyclos Securities, told Reuters. The government has pledged to step up its fight against widespread tax evasion as part of a multibillion-euro plan to cut its ballooning budget deficit. «Given this data, the annual GDP drop could be smaller than the government’s 4.0 percent fall forecast this year, because capturing the black economy could contribute about 5-6 percent to GDP. I think that the government will finally meet its deficit target this year,» Vergos said.

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