EU Says Greek Shrink 4.4%

In a report that is already outdated, the European Commission has projected the Greek economy will contract 4.4 percent this year, the deficit reach 4.6 percent of Gross Domestic Product (GDP) – and that unemployment would reach 27 percent, which it did several months ago.
In its winter economic forecast for the EU, the Commission outlined how it expects 2013 to be another challenging year for Greeks, when the debt-to-GDP ratio is expected to rise to 176 percent of GDP despite three years of rescue loans and harsh austerity measures that have backfired.
“Investment is likely to continue underperforming in the short-run, as the majority of businesses still face liquidity constraints or wait to see more evidence of a pick-up of the economy,” the EU’s executive arm said.
“Though exports are projected to grow as the economy is improving its competitiveness, they are likely to remain subdued due to still weak external conditions. It is expected that these factors will continue to dominate for most of 2013, only partially compensated by the reversal of the liquidity squeeze, notably as the government plans to repay arrears for an amount of up to 4 percent of GDP.”
The Commission expects to see the Greek economy recover in 2014, when it is forecast to grow by 0.6 percent. Brussels thinks unemployment will fall to 25.7 percent next year, although other analysts said it will rise to a new record of 30 percent as the government starts firing public workers. The public deficit is projected to drop to 3.5 percent of GDP.
“This reflects ongoing positive supply-side developments,” said Brussels. “Reductions in unit labor costs (due to far-reaching labor market reforms) and product market liberalization are expected to create new business opportunities and to encourage job creation once the economy picks up.
The EU said Greece also is expected to benefit by giving its banks 50 billion euros ($65.9 billion) in recapitalization funds so they will start lending again and try to bring a kick start to the economy.
Greece is implementing austerity measures worth 7.2 percent of GDP this year and next. Wages are expected to drop another 7 percent this year and 2 percent in 2014 as Greece tries to drive down labor costs to compete with poorer countries such as Bulgaria and Romania by slashing workers’ pay and benefits.
The current account deficit is expected to decrease from 7.7 percent of GDP in 2012 to 4.3% in 2013 and 3.3 percent in 2014. The Commission says there is a possibility recovery will begin in 2013 rather than 2014 but cautioned that depressed demand may also trigger higher unemployment.
The uneasy coalition government of Prime Minister Antonis Samaras, the New Democracy Conservative leader, is imposing more pay cuts, tax hikes and slashed pensions on the orders of international lenders putting up $325 billion in two bailouts to prop up the country’s stagnant economy.