Greek Recession Making Bailout Targets Harder to Meet: Economy

Greek Prime Minister Antonis Samaras
Some members of Greek Prime Minister Antonis Samaras’s coalition government have said a deeper contraction means Greece will struggle to meet its target of reducing the budget deficit to 7.3 percent of GDP this year from 9.1 percent last year. Photographer: Chris Ratcliffe/Bloomberg

Greece’s economy contracted for a ninth straight quarter, making it harder for the government to meet the budget-reduction targets required under the country’s international bailouts.

Gross domestic product declined 6.2 percent in the second quarter from the same period last year after dropping 6.5 percent in the first, the Athens-based Hellenic Statistical Authority said in an e-mailed statement today. The median estimate of three economists in a Bloomberg News survey was for a contraction of 7 percent. The authority doesn’t publish seasonally adjusted data or quarter-on-quarter rates.

Greece’s economic slump, now in its fifth year, has been exacerbated by austerity measures imposed by creditors to reduce the nation’s budget deficit. Without further rescue loans, Greece may default on its debts, which could precipitate its departure from Europe’s monetary union.

“We keep on pushing more austerity simply because we have to meet conditionalities, and there is very little done really in terms of growth,” Elena Panaritis, a former member of parliament for the socialist Pasok party, said in a Bloomberg Television interview today.

The revelation of Greece’s spiraling debts in late 2009 sparked Europe’s sovereign debt crisis, which is now threatening to drag the 17-nation euro region into recession. Euro-area GDP fell 0.2 percent in the second quarter from the first, according to a Bloomberg survey of economists. That report is due from the European Union’s statistics office in Luxembourg at 11 a.m. tomorrow.

Japanese Growth

European stocks were marginally weaker at 11:30 a.m. in London, with the Stoxx Europe 600 Index down 0.1 percent, as slowing growth in Japan added to signs of a deepening global economic slump. U.S. index futures and Asian shares also fell. The euro was 0.3 percent firmer at $1.2324.

Japan’s growth slowed to an annualized 1.4 percent in the three months through June from 5.5 percent the previous quarter, a Cabinet Office report showed in Tokyo today. From the previous quarter, GDP grew 0.3 percent.

In the euro area, Spain and Italy are in recession as their governments cut spending in an effort to win back investor confidence and reduce bond yields. Growth in Germany, Europe’s largest economy, probably slowed to 0.2 percent in the second quarter from 0.5 percent in the first, according to another Bloomberg survey. That report is due from the Federal Statistics Office in Wiesbaden at 8 a.m. tomorrow.

‘Recession Tunnel’

Greece’s economy has contracted in 14 of the past 15 quarters.

“The cumulative drop in GDP since mid-2008 now amounts to about 18 percent,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “The bottom line is that we can’t yet see any light in Greece’s recession tunnel, but at least the first-half contraction is not as large as in the second half of last year.”

The European Commission in May forecast Greece’s economy will contract 4.7 percent this year. Some members of Greek Prime Minister Antonis Samaras’s coalition government have said a deeper contraction means Greece will struggle to meet its target of reducing the budget deficit to 7.3 percent of GDP this year from 9.1 percent last year.

Representatives from the so-called troika of the Commission, European Central Bank and International Monetary Fund return to Athens early next month to review Greece’s economic program, which will determine whether the nation will receive further funds from rescue packages totaling 240 billion euros ($295 billion).

German Flexibility

While Germany has “a certain flexibility” as regards Greece’s program targets, “that flexibility ends should we be asked to supply more money beyond the program,” Michael Meister, deputy parliamentary leader of Chancellor Angela Merkel’s Christian Democratic Union party, said in an Aug. 7 interview.

Samaras has held meetings with the leaders of the two parties supporting his coalition since it was formed after June 17 elections to hash out an 11.5 billion-euro package of budget cuts demanded by creditors for the next two years.

Greece’s jobless rate rose to 23.1 percent in May from 22.6 percent the month before, the statistics agency said last week. The jobless rate for Greeks aged 15 to 24 jumped to 54.9 percent, the highest in the 27-nation EU, from 51.5 percent in the previous month.

Signs of Stabilization

At the same time, industrial production rose on an annual basis for the first time in four years in June, increasing 0.3 percent after a 2.9 percent drop in May.

Greece also beat its state budget-deficit goal for the first seven months of 2012, according to preliminary figures from the Finance Ministry published Aug. 10. The gap, which excludes outlays by state-controlled enterprises, was 13.2 billion euros compared with a target of 14.8 billion euros.

“The recession remains strong, but seems to be slowing in the last quarter,” said Nicholas Magginas, an economist at National Bank of Greece SA in Athens. “That reflects the rapid contraction in imports and improvement in external demand, which ameliorated the recessionary impact from domestic demand.”

Greece will auction 3.13 billion euros of 13-week Treasury bills tomorrow, the most in at least a year, as the country deals with its funding squeeze. Two Greek bonds on the ECB’s books, totaling 3.1 billion euros, mature on Aug. 20, data compiled by Bloomberg show.

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