Greek economy to sink 6.0% in 2012
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.
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