Greek economy heading for 7% tumble

Greece’s crippled economy will fall a steeper-than-expected 6.9% this year, a think-tank formerly run by the new finance minister said yesterday, a tumble that will hamper efforts to cut the deficit and bring yet more pain to Greeks. Such a decline would mean Greece’s economy has shrink by a fifth since the end of 2007. It was underlined by data showing the construction sector still in a deep slump. The growth forecast, from the Foundation for Economic and Industrial Research (IOBE), could give Athens more ammunition as it tries to persuade eurozone partners and the IMF funding its 130bn euro rescue package to ease up on the austerity measures it blames for deepening the recession. Headed by Yannis Stournaras until he became finance minister last week, IOBE said the government could follow a 100-day programme to kick-start the economy that included paying arrears on more than 6bn euros the state owes the private sector, and funnelling available funds to large infrastructure projects. Greece’s new conservative-led coalition government has promised to bring its economic reform programme back on track through privatisations and long-discussed reforms in a bid to show it means business and regain credibility with lenders. In April, IOBE had projected a 5% GDP slump for this year. In its fifth year of recession, the economy shrank 6.9% in 2011. “If our recession forecast is confirmed, we will have lost about 20% of our GDP in the last five years,” said IOBE economist Angelos Tsakanikas. “The situation in the construction sector is dramatic. Just 0.04% of the population plan to buy a home this year based on responses to a survey - that’s about 3,500 people, very low,” he said during a presentation of the quarterly report. Fresh data by the country’s statistics service Elstat yesterday showed the slump in construction, a growth driver in the years that preceded the debt crisis, continued unabated in April. It said building volume was down 27.3% year-on-year that month. Tighter bank credit coupled with cuts in wages and pensions have squeezed household disposable incomes, weakening demand for new homes, while a property levy to fill state coffers has also taken a toll. Also raising its forecast for unemployment to 23.6% from 20%, IOBE said much would depend on consumer spending in the rest of the year. Household budgets will be squeezed by a deteriorating labour market, falling wages and additional measures that may be imposed to shore up public finances. IOBE’s gloomier outlook is bleaker than EU Commission and IMF projections, which respectively predict the €215bn economy will contract 4.7 to 4.8% this year. It is also more pessimistic than forecasts of 5.3% by the Organisation for Economic Co-operation and Development and 5% by the Bank of Greece. from gulf times.