* Greek GDP to slump 5 pct in 2012
* Current account gap to shrink to 7.5 pct of GDP
* Inflation seen at 1.2 pct in 2012
* Strict adherence to reforms urged
By George Georgiopoulos
ATHENS, April 24 Greece's economy will contract
a deeper than expected 5 percent this year, the country's
central bank chief said on Tuesday, piling more pressure on to a
citizenry already battered by crippling austerity and record
The projection topped a previous forecast the central bank
made in March, when it projected the 215 billion euro economy
would contract 4.5 percent after a 6.9 percent slump in 2011.
Twice bailed-out Greece is in its fifth consecutive year of
Speaking to shareholders at the central bank's annual
assembly, George Provopoulos, also a European Central Bank
Governing Council member, urged strict adherence to reform and
fiscal adjustment commitments Greece has agreed with its euro
zone partners, saying they were needed to return the economy to
Athens is under pressure to apply more fiscal austerity to
shore up its finances as part of a new rescue package agreed
this year with its euro zone partners and the International
Monetary Fund (IMF) to avert a chaotic default.
Its continued funding under the 130 billion euro package
will hinge on meeting targets.
Provopoulos warned that Greece's euro zone membership was at
stake if it failed to follow through on its pledges, especially
after national elections next month.
"If following the election doubts emerge about the new
government and society's will to implement the programme, the
current favourable prospects will reverse," he said.
Greece is set to pick a new government on May 6, with the
two main parties in the current coalition seen barely securing a
majority in parliament, according to the latest opinion polls.
Whoever wins will have to agree additional spending cuts of
5.5 percent of GDP, or worth about 11 billion euros for
2013-2014, and gather about another 3 billion from better tax
collection to keep getting aid, the IMF has said.
The central banker projected Greece's current account gap, a
key indicator reflecting eroded economic competitiveness, would
shrink to 7.5 percent of gross domestic product (GDP) this year
from 9.8 percent in 2011. In March the central bank forecast the
gap would drop to 7 percent of GDP this year.
"The expected drop in unit labour costs in 2012-13, coupled
with the projected price trends will lead to a marked
improvement in competitiveness, contributing to a rise in
exports and import substitution," he said.
Consumer inflation is seen slowing to 1.2 percent this year
and may fall below 0.5 percent in 2013. Weak domestic demand
combined with downward wage pressures have shrunk the country's
inflation differential with other euro zone states.
The central bank estimates that by the end of this year the
economy will have regained up to three quarters of
competitiveness lost during 2001-09. Greece joined the euro in
2001 and enjoyed a consumption boom on lower borrowing costs.
Provopoulos said the fiscal shortfall had come down markedly
but remained high. Last year Greece shrank its budget gap by 1.2
percentage points to 9.1 percent of GDP and aims for a 6.7
percent deficit this year.
Austerity measures including income and property tax
increases, a rise in value-added tax rates and cuts in wages and
pensions, helped reduce the gap from 15.6 percent of GDP
in 2009, when its debt crisis erupted.
"The sought attainment of primary surpluses from 2013 is now
achievable," the central banker said.
Provopoulos also said private sector bank deposits had
declined by more than 70 billion euros since the end of 2009, a
sum equivalent to about one third of the country's GDP, in a
blow to the banking sector's lending capacity.