Greek economy stuck in recession, complicates fiscal efforts

Mon Oct 3, 2011 7:52am EDT
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By Harry Papachristou and Ingrid Melander

ATHENS (Reuters) - The Greek economy will remain stuck in recession next year, underlining the challenge the country faces in creating enough growth to claw its way out of a debt crisis shaking the euro, Greek budget figures showed on Monday.

Gross domestic product (GDP) is seen contracting by 2.5 percent next year from a 5.5 percent slump in 2011, according to the country's 2012 budget draft, which was submitted to parliament after agreement with international inspectors.

Those numbers are in line with recent forecasts by the IMF, but much worse than predictions used in July to calculate a second, 109 billion euro rescue package which anticipated 0.6 percent growth in 2012, putting an end to three consecutive years of recession.

Greece's Finance Minister Evangelos Venizelos said the budget draft marked a key transition from deficits to surpluses, excluding the country's huge debt service costs.

"The 2012 budget completes an intense and difficult effort of fiscal adjustment, reaching a primary surplus of 3.2 billion euros in 2012 from a primary deficit of 24 billion in 2009," he said in a statement.

However, if Greece's international lenders, also known as the "troika," conclude in a report to be issued this month that recession will continue to be worse than predicted, EU officials have suggested that banks that agreed in July to write off 21 percent of the value of their Greek debt holdings may be forced to take deeper losses.

The country's debt is expected to rise to nearly 173 percent of GDP next year from about 162 percent in 2011, the budget draft said. Greek growth is a key factor in determining whether this debt is viable or whether the country will have to default.

BUDGET TARGETS   Continued...

<p>Greece's Prime Minister George Papandreou arrives for a cabinet meeting inside the parliament in Athens October 2, 2011. REUTERS/Panagiotis Tzamaros</p>