UPDATE 1-Greece, lenders see smaller recession of 4.0 pct this year - sources

Tue Sep 24, 2013 9:54am EDT

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ATHENS, Sept 24 (Reuters) - Greece and its international lenders have agreed on a joint forecast that the country's economy will contract by 4.0 percent this year, less than previously projected, two senior Greek finance ministry officials told Reuters on Tuesday.

The previous estimate by the European Union, European Central Bank and International Monetary Fund "troika" was that the economy would shrink by 4.2 percent in 2013, its sixth straight year of recession.

The course of Greece's gross domestic product (GDP) is a key variable affecting important ratios including public debt and the budget deficit which are closely watched under its bailout programme.

"This is a conservative estimate," one of the officials said, meaning the downturn could even turn out smaller.

Last week Athens said it expected the economy to decline by 3.8 percent this year and recovery is on the way.

Finance Minister Yannis Stournaras said last week the economy may have already bottomed out, citing government estimates that GDP had expanded between the first and second quarters for the first time since the country's debt crisis erupted.

Athens hopes that a smaller recession and recovery next year will help it avoid further, painful austerity measures to meet the fiscal targets under its international bailout.

The trio of European Union, International Monetary Fund and European Central Bank lenders began an inspection on Sunday to assess compliance with reforms and how much further financing Athens will need before it regains market access.

The two sides are also close to agreeing that Greece will achieve a small primary budget surplus this year, before interest payments, a finance ministry official said on Sunday.

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