Greek Economy to Shrink More Than Forecast, Group Says

Greece’s economy will contract by more than forecast this year as rising unemployment and wage and pension cuts curb domestic demand, the Foundation for Economic and Industrial Research said.

The economy will shrink by about 6.9 percent in 2012, the same as in in 2011, and more than its April 2 forecast for a 5 percent contraction, the Athens-based foundation, also known as IOBE, said today in its quarterly report on the Greek economy.

The high rate of decline in consumer demand since the beginning of the year will continue to have a negative impact on the labor market with unemployment for 2012 expected to reach 23.6 percent, according to IOBE. The foundation was headed by Yannis Stournaras until he was named Finance Minister on June 26.

Unemployment in Greece soared to a record 22.6 percent in the first quarter amid a slump deepened by wage and pension cuts and tax increases that are part of austerity measures linked to the country’s international rescue program. Gross domestic product in Greece, which is in its fifth year of recession, shrank 6.5 percent in the first quarter from a year earlier.

Greece will tell its creditors that high unemployment and recession necessitate changes to the country’s international bailout agreement, government spokesman Simeon Kedikoglou said July 3.

To contact the reporter on this story: Paul Tugwell in Athens at ptugwell1@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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