Greek econ­omy to sink 6.0% in 2012

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Real GDP is ex­pected to fall in 2012 for a fifth year in a row. A fur­ther con­trac­tion is likely in 2013. Unem­ploy­ment is ris­ing and will ex­ceed 20% in 2012. In 2012, it be­came clear that im­ple­men­ta­tion of the aus­ter­ity pro­gramme was be­hind sched­ule.

Athens hopes to be granted another de­lay in meet­ing its tar­gets. The Greek econ­omy will need at least 10 years to reach pre-cri­sis lev­els.

Over­view of the econ­omy

Af­ter sev­eral years of less than im­pres­sive growth, Greece’s real GDP started con­tract­ing in 2008. This was the coun­try’s first re­ces­sion since 1993. Lax fis­cal poli­cies and weak con­trols over spend­ing re­sulted in a fis­cal deficit equiv­a­lent to 12.9% of GDP. The re­ces­sion con­tin­ued in 2011 when real GDP fell by 6.9% (the fourth straight year of de­cline). Greece’s heavy de­pen­dence on for­eign bor­row­ing cre­ated prob­lems far be­yond its bor­ders. At home, con­sump­tion and in­vest­ment both de­clined.

The Greek econ­omy is small, ac­count­ing for less than 3.0% of the eu­ro­zone’s out­put. The un­of­fi­cial econ­omy is be­lieved to ac­count for a third of all eco­nomic ac­tiv­ity.

Eco­nomic prospects

Real GDP is ex­pected to fall by 6.0% in 2012. Prob­lems stem from a sig­nif­i­cant con­trac­tion in do­mes­tic and ex­ter­nal de­mand. The econ­omy shrank by 6.2% in the first quar­ter of 2012 com­pared with the same pe­riod last year. The scale of the con­trac­tion makes it even harder for the govern­ment to meet its bud­get deficit tar­gets.

At present, the Greek econ­omy is 14% smaller than it was three years ago and it will need at least 10 years to re­turn to pre-cri­sis lev­els. The govern­ment has al­ready fallen be­hind sched­ule on its re­form ef­forts, par­tic­u­larly on pri­vati­sa­tions and tax col­lec­tion.

Greece’s predica­ment has deep­ened con­sumers’ in­se­cu­rity about jobs and debt, driv­ing them to cut spend­ing and to try to un­wind bor­row­ing. The real value of pri­vate fi­nal con­sump­tion fell by 7.3% in 2011 and a de­cline of 0.8% is ex­pected in 2012.

Hous­ing prices could fall by as much as 15% in the next two years as in­ter­est-rate in­creases make it harder for bor­row­ers, al­ready hit by the govern­ment’s aus­ter­ity mea­sures, to keep up with mort­gage pay­ments. Unem­ploy­ment jumped to 17.7% in 2011 and is ex­pected to reach 20.9% dur­ing 2012. Up to 100,000 jobs were lost in 2011 alone. Ac­cord­ing to a sur­vey by the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment, unem­ploy­ment among those be­tween 15 and 24 years of age topped 43% in mid-2011, nearly twice the level in 2008. Jobs in the pub­lic sec­tor will be cut by 150,000 by 2015. In ad­di­tion, work­ers in the pri­vate sec­tor are en­coun­ter­ing salary de­lays as com­pa­nies try

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