Economy shows some resilience

Officials at the Finance Ministry are working on alternative 2010 growth scenarios for the Greek economy after clear indications that the recession this year will be less severe than first thought. This view is also shared by officials that visited Athens this week from the European Commission, European Central Bank and International Monetary Fund, a team dubbed «the troika» by the Greek press. In the memorandum the Greek government signed with the three organizations last month, in order to secure the 110-billion-euro rescue plan, it was forecast that the economy will contract by an annual pace of 4 percent this year. However, the fact that the economy contracted by 2.5 percent in the first quarter of 2010 has led the Finance Ministry to the conclusion that a negative gross domestic product rate of 3.0 to 3.5 percent is more likely for this year. Senior Finance Ministry officials told Kathimerini that this forecast is «a very pessimistic scenario.» On an official level, it is too early to improve the growth estimate for 2010. On an unofficial level, the officials said the government believes a dip in economic activity of between 3.0 and 3.5 percent is more realistic. Despite the outcome for the whole year, the downturn in the second and third quarters of 2010 will be steeper than the January-March period. Expectations for economic growth in the fourth quarter of the year are a bit more upbeat based on the idea that «no further austerity measures will need to be introduced, based on indications so far,» the officials added. The government expects a dip in economic activity between April and September due to pressure put on consumption arising from recent tax hikes and a reduction in salaries. The second consecutive hike in value-added tax, along with increases in levies on tobacco, alcoholic drinks and petrol, are seen biting into consumers’ pockets over the spring-summer period. Additionally, cuts to public servants’ salaries as of April, affecting the Easter and summer bonuses, are also seen hurting household income over the two quarters.