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Greece '12 GDP Seen Down 4.7%

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ATHENS -- Greece's economy remains mired in a deep recession with no signs of an upturn in sight, the European Commission said Friday, as waves of austerity measures and collapsing consumer and business confidence weigh on output.

According to the spring forecasts from the Commission, gross domestic product will shrink by 4.7% this year and will be flat in 2013, it said, reaffirming the most recent outlook from Greece's troika of international lenders--which includes the Commission, along with the International Monetary Fund and the European Central Bank.

"In 2012 a further contraction is expected, resulting from both a significant fall in internal demand and less dynamism in exports than expected. Households' disposable income being hit by rising unemployment, cuts in private sector wages and the fiscal measures will keep domestic demand contracting," the Commission report said.

"Also, unfavourable business and consumer sentiment and difficulties in access to credit for firms and households will contribute to their postponing spending decisions," it added. "The recovery, which was previously expected for this year, will be further delayed with, at best, an insignificant improvement in activity in 2013."

The report says that Greece's ongoing reform efforts, which include steep cuts in wages and liberalizing the labor and services markets, will help the economy regain the competitiveness it had lost after a decade of booming, debt-fueled domestic demand.

However, unemployment is also expected to rise further to an average 19.7% rate this year--versus 17.7% in 2011--before easing slightly to 19.6% in 2013. Inflation, which has remained stubbornly high despite the contracting economy, is seen nose diving this year with consumer prices expected to fall 0.5% after rising an average of 3.1% in 2011.

"Inflation inertia remains high for an economy that is entering its fifth year of recession," the report says. "However, the low level of economic activity in 2012 and the reduction in private sector wages is expected to moderate prices, with slightly negative inflation rates expected in 2012 and 2013."

The report also reaffirms Greece's projected budget targets--agreed with the troika--that foresee a 7.3% deficit-to-GDP ratio this year.

Under the terms of the country's latest EUR130 billion bailout, Greece must detail some EUR11.5 billion worth of spending cuts to close that gap in 2013 and 2014. In the absence of any new cutbacks, the Commission predicts that Greece's budget deficit will rise back to 8.4% next year.

-By Alkman Granitsas, Dow Jones Newswires, +30 210 373 1774; alkman.granitsas@dowjones.com

 

(END) Dow Jones Newswires

May 11, 2012 05:45 ET (09:45 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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