Greek finance ministry expects recession-hit economy to shrink

ATHENS — Greece’s finance minister said Monday that the crisis-afflicted economy will shrink more than expected this year, putti

ATHENS — Greece’s finance minister said Monday that the crisis-afflicted economy will shrink more than expected this year, putting further pressure on the country’s ambitious deficit-cutting effort.

Evangelos Venizelos said the ministry forecasts annual output to shrink in 2011 between 4.5 per cent and 5.3 per cent of Gross Domestic Product.

Venizelos had previously admitted that the recession might be over last year’s 4.5 per cent, a whole percentage point worse than initially estimated. The government has forecast a timid return to growth in 2012, but that now seems very unrealistic.

“All the measures we are taking … are aimed to stem the recession,” Venizelos said.

After living above its means for years until punishing interest rates forced it out of bond markets, Greece is now only kept solvent by a double rescue loan deal worth C220 billion ($317 billion) from its European partners and the International Monetary Fund.

In return, the Socialist government has promised to reduce a bloated budget deficit, sell C50 billion worth of state assets by 2015 and strictly abide by a highly unpopular austerity program that already has eaten deep into wages and pensions.

EU and IMF officials will be in Athens later this week to monitor progress — on which continued disbursement of the rescue loans depends.

“We (are approaching) the last quarter, the budget must be executed, we must achieve our fiscal targets — and this has become very difficult due to the deeper recession,” Venizelos told a news conference.

“There is undoubtedly a vicious cycle. We have been obliged over the past two years and in the coming three to implement a gigantic fiscal adjustment … which has a negative impact on the real economy. But these are the terms under which we receive our loans and rescue packages.”

Venizelos said he will discuss the matter with the visiting European Union, European Central Bank and IMF representatives, also known as the “troika.” He stressed, however, that the previous recession estimates had been worked out in co-operation with troika officials.

The government has committed to cutting budget overspending from 10.5 per cent of GDP in 2010 to 7.5 per cent this year.

“We will see how the deeper recession affects the fiscal result,” Venizelos said. “If all the measures already voted through parliament are implemented, we will be within our targets — or at least extremely close to our targets. And this is the basic issue we will discuss with the troika.”

Venizelos said Greece’s borrowing needs for September — when the next batch of international loans must be released — have been secured.