Greek Q1 GDP shrinks 0.8 pct, worse expected to come

ATHENS (BestGrowthStock) – Greece’s economy shrank less than expected in the first three months of the year but the debt-ridden country was still firmly in recession which is expected to deepen, while the rest of the euro zone grows.

Data released on Wednesday showed Greek GDP contracted 0.8 percent in the first quarter compared to the last quarter of 2009, better than the 1.4 percent drop forecast by economists polled by Reuters.

The overall euro zone grew for the third quarter in a row — by 0.2 percent in the latest three months — and analysts forecast the contraction of the Greek economy would accelerate.

“The contraction of economic activity is continuing at about the same pace on a quarterly basis as domestic demand falls on the background of declining disposable income and increased uncertainty,” said Nikos Magginas, economist at National Bank of Greece.

“The pace of contraction of economic activity is expected to accelerate in the following two quarters as a result of a further decline in the disposable income from the additional austerity measures and mounting uncertainty over near-term macroeconomic prospects.”

In return for emergency aid from euro zone nations and the International Monetary Fund, Athens has committed to deep budget cuts, that have already caused violent public protests in the country, which if enacted will choke economic activity further.

The Greek economy shrank by 2.3 percent year-on-year in the first three months of the year, the Eurostat data showed, also less than the 2.7 percent drop forecast by economists.

Eurostat revised Greece’s Q4 year-on-year contraction to 2.6 percent from 2.5 percent.

“The better than expected data for the gross domestic product both month-on-month and year-on-year are the result of a more successful than projected capture of the black economy,” said Constantinos Vergos, analyst at Cyclos Securities.

The Greek government has pledged to step up its fight against widespread tax evasion as part of a multi-billion euro plan to cut its ballooning budget deficit.

“Given this data, the annual GDP drop could be smaller than the government’s -4.0 percent forecast this year, because capturing the black economy could contribute about 5-6% to the GDP. I think that the government will finally meet its deficit target this year,” Vergos said.


(Reporting by Ingrid Melander and Angeliki Koutantou; Writing by Ingrid Melander, editing by Mike Peacock)

Greek Q1 GDP shrinks 0.8 pct, worse expected to come