Greece will enter its sixth year of recession in 2013 but will start to come out of it in the second half of the year, leading to a modest expansion in 2014, the European Commission said Wednesday in its Autumn Forecast report.
The Commission projected a 4.2% decline in Greek GDP next year, driven by declining household income, as unemployment continues to rise and wages fall. Austerity measures to cut the public deficit will continue to weigh on domestic demand, while investment will remain “heavily subdued” due to constrained lending and lingering political uncertainties.
Still, the anticipated contraction in GDP next year will be considerably smaller than the 6% drop in activity forecast for this year.
Tough labor market reforms and the economic slump are putting significant downward pressure on wages, with per employee compensation expected to drop 6.8% in both 2012 and 2013, exactly double the 3.4% slide registered last year.
Falling wages are in turn putting downward pressure on consumer inflation. Consumer prices are expected to rise just 1.1% this year, after 3.1% in 2011, and for the following two years they are projected to plummet into deflation territory: -0.8% in 2013 followed by -0.4% in 2014.
At the same time, unemployment is seen peaking in 2013 at 24%, after 23.6% this year. In 2014, it should decline to 22.2% the Commission predicted.
That is in line with the Commission’s expectation that the turning point of the recession will come in the second half of next year, “leading to moderate growth of 0.6% in 2014.” That forecast is predicated on “the return of confidence and investment, boosted by the implementation of reforms under the economic adjustment programme, as well as progress with major projects co-financed by EU funds,” it said.
“The drag exerted by consumption, heavily affected in 2013 by the fiscal consolidation, is projected to fade,” the report said. The rebound will also be aided by stronger net exports, driven by weaker imports and “continuous improvement in the balance of trade in services.”
With the new austerity measures currently before the Greek parliament, equal to about 5% of GDP, the government hopes to achieve primary budget balance in 2013. This would reduce the government deficit to 5.5% of GDP in 2013 from an expected 6.8% this year. The shortfall is projected to narrow further to 4.6%, in 2014. This presumably assumes that Greece will be granted the two-year extension it is seeking to reach its targets, since otherwise Greece was expected to bring its deficit down to the EU limit of 3% by 2014.
Greece’s debt ratio is seen hitting 188.4% of GDP next year, up from 176.7% in 2012, then rising slightly further in 2014 to 188.9%.
(source: MNI)
See all the latest news from Greece and the world at Greekreporter.com. Contact our newsroom to report an update or send your story, photos and videos. Follow GR on Google News and subscribe here to our daily email!
