ECONOMY

Recession deepens further in Q2

Greece’s economy contracted in the second quarter of the year more than originally estimated, as the government cut back on spending and raised taxes in a bid to trim its massive budget deficit. Gross domestic product shrank 1.8 percent from the first quarter, when it fell 0.8 percent, the Hellenic Statistical Authority (ELSTAT) said yesterday. GDP declined by 3.7 percent from a year earlier. These figures were revised from an initial reading, published in early August, showing a quarterly contraction of 1.5 percent and a 3.5 percent drop from a year earlier. Greece faces a second year of recession as the government attempts to tame a budget shortfall of 13.6 percent of GDP, the highest in the 27-nation EU after Ireland. The ruling Socialists had forecast that the economy will shrink 4 percent this year but Finance Minister Giorgos Papaconstantinou has recently said that the downturn may be less severe than that initial estimate. Following yesterday’s reading on the state of the economy, some analysts believe the GDP decline will exceed the 4 percent mark this year with the downturn picking up in the second half due to the austerity measures being felt. Government consumption fell 8.4 percent from the first quarter of 2010, while private consumption dropped 4.2 percent, leading to a 5.1 percent decline in total consumption, according to ELSTAT figures. Household spending eroded at a record annual clip of 4.2 percent in the second quarter, hurt by wage cuts and tax hikes adopted in exchange for a 110-billion-euro bailout from the European Union and International Monetary Fund. Greece has cut public sector wages by 15 percent and pensions by 10 percent. At the same time, value-added tax has risen by 4 percentage points to 23 percent and other consumption taxes by a third as the government struggles to plug the holes in its budget. Investment dropped by 18.6 percent as firms, especially in the construction sector, slash projects and shed workers to cope with the downturn. The European recovery is doing little to help Greek exports and tourism receipts, ELSTAT’s figures showed. Exports of services, mainly receipts from foreign tourists, dropped in value by 7 percent, while sales of products abroad declined by 2.3 percent as Greek firms continue to suffer from low competitiveness.