Crisis seen hitting Greece hard

As the global economic crisis deepens,
the European Union’s latest report
expects the Greek economy to head
for a sharp slowdown in 2009, of almost
zero growth, pushing up the
country’s jobless numbers.
The European Commission, the
EU’s executive branch, said in an interim
report released earlier this
week that Greece’s 240-billion-euro
economy is seen as expanding in
2009 by 0.2 percent, versus a previous
estimate of 2.5 percent. The
economy is estimated to have grown
by almost 3 percent last year.
“Within a context of uncertainty
on global markets, tightening credit
conditions should put a brake on
private consumption while investments
should contract further,” it
outlined.
The outlook for the eurozone’s 16-
member group is also grim, expecting
it to shrink by 1.9 percent
this year before growing by only 0.40
percent in 2010. The economies of
Ireland, Spain and Germany are
seen contracting by an annual pace
of 5, 2 and 2.3 percent respectively
this year.
Greece is likely to avoid falling into
a recession – in which economic
growth contracts for two consecutive
quarters – however, two of the
country’s largest sectors, tourism
and shipping, will be severely tested
by the downturn.
“Transportation and tourism services
are also increasingly vulnerable
to the adverse international outlook
and are expected to contract, implying
a neutral contribution to GDP
growth from net exports,” the report
said. The downturn will weigh on the
labor market, sending Greece’s unemployment
rate to 9 percent this
year, from 8.3 percent in 2008, before
a further spike to 9.4 percent in 2010.
On the fiscal front, Greece’s ballooning
budget deficit is tipped to
reach 3.7 percent of gross domestic
product in 2009, from 3.4 percent last
year, before widening to more than
4 percent in 2010.
The fiscal blowout would mean
that Greece would breach the EU’s 3
percent limit for four straight years,
according to the Commission.
This could result in the EU launching
the excessive deficit procedure
against Greece – disciplinary action
by the Commission against countries
that surpass the limit and can also
lead to penalties. A verdict on the issue
is expected next month.
The figures come into sharp contrast
with Greek government estimates,
which point to a softer landing
for the economy this year in the
worst global crisis seen in decades.
In response to the news, National
Economy and Finance Minister
Yiannis Papathanassiou said he was
optimistic Greece could outperform
the Commission’s forecasts while also
improving its fiscal record.
After meeting with Economic and
Monetary Affairs Commissioner
Joaquin Almunia in Brussels, Papathanassiou
said the government’s
economic priorities would focus on
fiscal adjustment and supporting the
social groups hit the hardest by the
downturn.
“We believe that with the policies
we are going to follow we will have
positive results and will achieve better
performance than the Commission
has forecast for Greece,” he said.
Next week, the Finance Ministry
is expected to submit its updated Stability
and Growth Program to Brussels,
in which it will lower its gross
domestic product growth target for
2009 from 2.7 percent currently.