UPDATE 3-Gloomy outlook weighs on Greek budget goals

* Central bank head sees GDP contracting 2.0 pct this year

* EU sees GDP drop of at least 2.25 pct this year

* Govt had forecast 0.3 pct drop, economists see -1.5 pct

* Economists see tough Q1, Q2 as government cuts hit

* H2 recovery hangs on stimulus measures, summer tourism

(Adds EU forecast, bond yield spread)

By George Georgiopoulos and Renee Maltezou

ATHENS, March 12 (BestGrowthStock) – Greece’s economy will shrink
more than the government is forecasting this year, its central
bank governor said, while the European Commission produced an
even bleaker prognosis for the debt-laden country.

Bank of Greece (BOGr.AT: ) Governor George Provopoulos told
Reuters that “bold” government cutbacks designed to tame a 300
billion euro ($413 billion) debt pile meant the economy would
contract 2 percent this year. [ID:nLAG006170]

His view is at odds with the finance ministry, which accepts
the economy will undershoot official forecasts for a 0.3 percent
contraction but does not think it will perform as badly as last
year, when gross domestic product fell 2 percent. [IDnLDE6291FH]

The central bank forecast is also weaker than many
economists expect but less so than the EU executive’s prediction
that GDP will decline by at least 2.25 percent this year,
according to a report on Greece’s latest efforts to cut its
deficit.

Markets are watching Greece’s economy closely for signs of a
much steeper downturn that would undermine a goal of cutting the
budget deficit to below 3 percent of GDP by 2012 from 12.7
percent last year and risk further unsettling the euro.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For details of Greek austerity plan click on [ID:nLDE62825T]
For factbox on Greek unions click on [ID:nLDE6231FN]
For euro zone protests factbox click on [ID:nLDE62A0RN]
For a new Interactive Factbox on Greece and its economy please
click on http://link.reuters.com/zys23j))
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> GDP shrank slightly less than feared at the end of 2009 and
unemployment eased, according to data published a day late after
nationwide strikes on Thursday against government austerity
measures.

Greece’s 240 billion euro economy, about 2.5 percent of the
euro zone’s, shrank at an annual rate of 2.5 percent in the
fourth quarter, slightly less sharply than a 2.6 percent
contraction indicated by flash estimates. [ID:nATH005276]

The unemployment rate fell to 10.2 percent in December from
10.6 percent in November as Greece contended with its first
recession in 16 years. [ID:nLDE62B0K4]

Both performances were worse than the euro zone average.
The economy of the 16 countries using the euro contracted
2.1 percent year-on-year in the fourth quarter and unemployment
was 9.9 percent in January [ID:nLDE6230SD] [ID:nLDE62013C]

“The fourth quarter GDP data is not indicative of what is to
come,” said Dimitris Skapinakis, Chief Investment Strategist at
Marfin Group. “The first and the second quarters will be bad and
probably worse than the fourth quarter of 2009.”

Skapinakis said the second half performance would depend
largely on whether the government was in a position to introduce
expansionary measures designed to counterbalance the impact of
cutbacks and on the summer tourist season.

The premium investors demand to buy Greek government debt
rather than benchmark German Bunds fell slightly having widened
on Thursday as it became clear any European Monetary Fund would
not materialise in time to help Greece. [ID:nLDE62B1L6]

“AFRAID AND WORRIED”

A Reuters poll of economists on Wednesday showed the Greek
economy shrinking 1.5 percent this year and then returning to
growth of 0.5 percent next year. [ECILT/EU]

Yola Sefteli, manager of a sandwich shop in central Athens,
said she was trying avoid raising prices in order to hang onto
remaining customers.

“We have felt the recession. Staff from big companies and
banks have stopped eating here,” Sefteli said. “We are all
afraid and worried that the restaurant might close if things get
any worse or that we might need to cut staff.”

Nikos Magginas, economist at National Bank of Greece, said
there was little chance of an imminent improvement in the labour
market despite December’s uptick.

“The unemployment rate is still on an upwards trend and its
slight drop in December simply reflects the relatively good
state of seasonal demand,” Magginas said.

Data on Friday also showed industrial output declined at a
much more modest pace in January while budget revenues continued
to come in ahead of target — boding well for government efforts
to tame the budget deficit. [ID:nATH005277][ID:nATH005278]

Economists fear, however, that austerity measures have yet
to hit consumers’ pockets and support for the government will
suffer once the impact is felt.

“The Greek crisis is far from over,” wrote Ben May, European
Economist at Capital Economics, cutting his 2010 GDP forecast to
-3.0 percent from -2.0 percent. “With the economy set to
contract sharply this year, additional fiscal measures may be
required for Greece to meet its budget goal.”

The European Commission said in its report that cutbacks
announced to date appeared sufficient for Greece to meet its
budgetary targets but warned some assumptions were ambitious or
that gains risked being much smaller than hoped. [ID:nLDE62B1L2]

It also said Greece would have to report back by May 15 with
details of what measures it plans to take in 2011 and 2012.

Stock Investing
($1=.7257 Euro)
(Additional reporting by Ingrid Melander; writing by Paul
Hoskins; Editing by Ruth Pitchford)

UPDATE 3-Gloomy outlook weighs on Greek budget goals