ATHENS—Analysts warned that Greece is at risk for a fourth year of recession in 2012, defying official forecasts of a recovery and dealing a further setback to the government's deficit-cutting plans.
Amid plunging consumer demand, weakening global growth prospects and the possibility of fresh austerity measures, analysts said Greece's economy could shrink 2% or more next year, following a 4.5% contraction in 2010 and an expected 3.9% downturn this year.
That would raise questions about the €110 billion ($158.5 billion) bailout the country received last year from its fellow euro-zone members and the International Monetary Fund. Those bailout loans are predicated on the moribund economy returning to growth in 2012 after painful fiscal and economic changes.
Reuters
The deteriorating forecast could refocus market attention on the country where the euro-zone debt crisis began, after weeks of hand-wringing over the economic woes in Italy and Spain.
A longer recession would hurt Greece's efforts to meet deficit-reduction goals, weighing on its ability to collect tax revenues while boosting outlays on social welfare. The country's debt ratio as a percentage of gross domestic product would deteriorate further. And rising unemployment, now nearly 17%, might further stoke public discontent and imperil the government's ability to push through unpopular fiscal steps.
"I am absolutely convinced that we are headed for further recession in 2012," said George Kyrtsos, a political commentator and editor of the City Press newspaper. "As such, it is a mathematical certainty that the budget deficit will increase next year, while just to keep our debt dynamics stable, Greece needs to have growth of at least 3.5% to 4%."
In the latest predictions prepared by the IMF, the European Commission and the European Central Bank, Greece's €325-billion-a-year economy is seen growing at an annual pace of 0.6% in 2012, down from a previous 1.1% forecast.
The Greek government also has cut economic forecasts several times since Greece received the €110 billion bailout last year. But official forecasters have stuck by their central assumption that the economy would return to growth—albeit modest—next year.
Now, doubts are creeping into official circles as well. At least one senior Greek government official privately admitted the government could revise its the growth forecast in the fall—when it will draw up next year's budget—to show a recession of as much as 2% next year.
Even that may be too optimistic. Giada Giani, Europe economist at Citigroup, said Greece can't escape "the impact of fiscal consolidation on domestic demand as well as tight financing conditions for the private sector." She said she anticipates that Greece's economy will shrink 2.7% next year.
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