Greek Economy Returns to Recession After Shrinking in Fourth Quarter

Protesting Greek farmers clash with riot police

Farmers clash with police in front of the Agriculture ministry in Athens, on Feb. 12, 2016.

Photographer: Ayhan Mehmet/Anadolu Agency/Getty Images
  • GDP falls 0.6 percent in fourth quarter, second straight drop
  • Return of country's economic slump ends recovery of 2014

Greece entered a recession in the fourth quarter, ending a turbulent year with its economy back in the doldrums.

Gross domestic product contracted 0.6 percent in the three months through December after shrinking a revised 1.4 percent in the previous quarter, the Hellenic Statistical Authority said in an e-mailed statement on Friday. The median estimate in a Bloomberg survey was for a 0.8 percent drop.

Greece began one of the most traumatic periods in its modern economic history with the election a little more than a year ago of an anti-austerity government committed to tearing up the country’s bailout agreements. That ended with a dramatic U-turn by Prime Minister Alexis Tsipras and a third bailout in August.

With opposition mounting to the government’s pension reform plan, the European Union pressuring it to stem the tide of refugees entering the country and the global market rout hastening the sell-off in Greek assets, dark clouds are gathering again. There were minor scuffles on Friday as farmers took to the streets of Athens to protest the pension overhaul.

Symbolic, Real

“We need some symbolic and real measures to boost confidence that the government has ownership of the reforms,” said Tassos Anastasatos, an economist at Eurobank Ergasias in Athens. “We expect weakness of domestic demand in the entire of 2016, and it remains to be seen to what extent that can be counterbalanced by exports and investments.”

The country will face renewed euro-exit fears unless its government and European creditors come up with a credible plan to make the country’s debt sustainable, Poul Thomsen, head of the International Monetary Fund’s European Department wrote in a blog post on Thursday. Both Greece and its European partners will face politically difficult decisions in the coming months, he said.

The fourth-quarter data show the economy contracted 0.7 percent over the whole year, according to Bloomberg calculations, reversing a nascent recovery after growth in 2014 ended a six-year slump. The August bailout agreement forecast GDP would shrink 2.3 percent in 2015.

The economy fared less badly than those initial expectations in part due to a 90 percent annualized increase in cashless payments since the introduction of capital controls in June, shifting activity out of the shadow economy, according to economists at National Bank of Greece including Paul Mylonas and Nicholas Magginas.

The European Commission forecasts Greek GDP will contract 0.7 percent in 2016 before growing 2.7 percent next year, according to its winter economic forecasts published last week.

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