August 13, 2012 / 9:20 AM / 8 years ago

UPDATE 2-Greece sinks again, more cuts to save bailout in store

* Q2 GDP contracts 6.2 pct yr/yr- flash estimate
    * Data seasonally unadjusted

    By George Georgiopoulos
    ATHENS, Aug 13 (Reuters) - Greece's economy shrank 6.2
percent on an annual basis in the second quarter, a slump that
is expected to persist as the government scrambles to nail down
billions in additional cuts to keep international bailout funds
    Currently in its fifth consecutive year of economic
depression, Greece is suffering record unemployment with nearly
one in four Greeks without a job, undermining efforts to meet
revenue targets and reduce the budge
    Athens is keen to convince euro zone partners and the
International Monetary Fund of its will to bring an economic
adjustment plan back on track before asking for modifications
and more time to spread out the pain of more cutbacks.
    But the fiscal drag caused by the pursued austerity policies
coupled with liquidity constraints and lingering uncertainty is
likely to keep recessionary headwinds in full force.
    "We project GDP to contract by 7.1 percent in 2012 and by
2.4 percent in 2013, on the back of further significant declines
in disposable incomes, rising unemployment and plummeting
investment activity," Eurobank economist Theodore Stamatiou
    Greece's jobless rate has already climbed to 23.1 percent,
with nearly 55 percent of those aged 15-24 out of work, a
desperate situation that fed into the popularity of anti-bailout
parties in elections earlier this year. 
    The three-party coalition government that emerged after two
rounds of polls is working to nail down 11.5 billion euros of
savings and plans to revive a labour measure targeting 40,000
public servants for eventual dismissal. 
    Without the additional savings the government's budget will
still show a primary deficit of 1 percent of GDP in 2014, well
short of a targeted 4.5 percent surplus to help stabilise debt.
    The second quarter preliminary gross domestic product
(GDP)estimate, released by statistics service ELSTAT on Monday,
was based on seasonally unadjusted data and follows a 6.5
percent GDP decline in the previous quarter.
    Think tank IOBE expects the economy to shrink 6.9 percent
this year, a bleaker outlook than estimates by the Bank of
Greece and the OECD earlier this year, which project a
contraction of 5.0 to 5.3 percent, respectively. 
    ELSTAT did not provide detailed estimates on the GDP
components - consumption, capital investment, exports and
imports - in the second quarter.
    "It's not a major surprise, we knew the Greek economy was
continuing to struggle but hopefully it's some sign that the
rate of decline is starting to bottom out," said Chris
Williamson, chief economist at London research firm Markit.     
    Greece is behind targets and structural reform benchmarks
agreed with international lenders who are demanding full
implementation before official funding resumes.
    Inspectors from the European Union, International Monetary
Fund and European Central Bank troika have back an assessment of
Greece's performance and will report back in September on
whether it deserves to get more payments under the 130 billion
euro rescue package.
    Weak spots where Greece has failed to deliver as planned
include public sector job cuts, reductions in state-run pension
benefits, the settlement of nearly 7 billion in state arrears
and proceeds from privatisations.
    The government changed the leadership team at the
privatisation agency aiming speed up the asset sales programme
which fell far below a target of more than 3.6 billion euros.
    Public administration reform, renewed emphasis on curtailing
tax evasion are also part of the reforms agenda.     
    KEY FIGURES     Q2 2012  Q1 2012  Q4 2011  Q3 2011  Q2 2011
    GDP (y/y, pct)    -6.2    -6.5      -7.5     -5.0    -7.3
    source: ELSTAT
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