Recession tunnel gets darker

Belt-tightening measures aimed at restoring Greece’s fiscal health sent the economy into a deeper-than-expected recession in the second quarter of the year, forcing a growing number of workers into unemployment. Provisional data released by the Hellenic Statistical Authority (ELSTAT) yesterday showed gross domestic product (GDP) contracted by 3.5 percent on an annual basis, versus a drop of 2.3 percent in the first quarter of the year. Quarter-on-quarter it contracted by 1.5 percent. Polls conducted by Reuters and Bloomberg showed that economists were looking for a annual contraction rate of 3.3-3.4 percent. Alpha Bank blamed a large part of the drop off on a 39.8 percent cut in the government’s investment program in the first half of the year, adding that a recovery in spending on public investments after June will help support growth. «It is likely that the Greek economy’s recession is peaking,» it said in a report yesterday. The European Commission, International Monetary Fund and European Central Bank, which agreed to lend Athens 110 billion euros, expect the economy to contract by 4 percent this year but Finance Minister Giorgos Papaconstantinou is more upbeat, recently predicting a less severe contraction rate. Greece has promised to reduce its budget deficit by 13.7 billion euros in 2010 to 18.6 billion euros, or 8.1 percent of GDP, in exchange for the rescue funds but the state’s austerity measures are taking a heft toll on the economy. The deficit cut, which translates into a massive 12-month fiscal adjustment, is a result of value-added tax hikes and cuts to pensions and public servants’ salaries, which are eroding household disposable income. Giorgos Kasimatis, the president of the Central Union of Chambers of Greece (KEEE), said earlier this week more than 100,000 businesses across Greece are heading for closure due to plunging consumption, putting 150,000 jobs at risk. ELSTAT data on May unemployment yesterday highlighted the deteriorating labor market conditions, particularly among younger Greeks. Unemployment in May jumped to 12 percent from 8.5 percent in the same month a year earlier, which means that 181,784 people lost their jobs. Greece’s working population stands at 4.43 million people. One in three people aged between 15 to 24 were out of work in May while the jobless rate for those aged between 25-34 stands at 15.8 percent. The jobless figure in the 27-member European Union stood at 10 percent. Unemployment is expected to rise sharply by the end of the year, according to the Greek General Confederation of Labor (GSEE), which sees the figure rising to as high as 20 percent due to the downturn and recently introduced changes to labor laws, allowing employers more flexibility in cutting staff numbers.