World Economy

Greece Back in Recession

Greece Back in RecessionGreece Back in Recession

Greece entered a recession in the fourth quarter, ending a turbulent year with its economy back in the doldrums.

Gross domestic product contracted 0.6% in the three months through December after shrinking a revised 1.4% in the previous quarter, the Hellenic Statistical Authority said in an e-mailed statement on Friday. The median estimate in a Bloomberg survey was for a 0.8% drop.

Greece began one of the most traumatic periods in its modern economic history with the election a little more than a year ago of an anti-austerity government committed to tearing up the country’s bailout agreements. That ended with a dramatic U-turn by Prime Minister Alexis Tsipras and a third bailout in August.

With opposition mounting to the government’s pension reform plan, the European Union pressuring it to stem the tide of refugees entering the country and the global market rout hastening the sell-off in Greek assets, dark clouds are gathering again. There were minor scuffles on Friday as farmers took to the streets of Athens to protest the pension overhaul.

 Symbolic, Real

“We need some symbolic and real measures to boost confidence that the government has ownership of the reforms,” said Tassos Anastasatos, an economist at Eurobank Ergasias in Athens. “We expect weakness of domestic demand in the entire of 2016, and it remains to be seen to what extent that can be counterbalanced by exports and investments.”

The fourth-quarter data show the economy contracted 0.7% over the whole year, according to Bloomberg calculations, reversing a nascent recovery after growth in 2014 ended a six-year slump. The August bailout agreement forecast GDP would shrink 2.3% in 2015.

The economy fared less badly than those initial expectations in part due to a 90% annualized increase in cashless payments since the introduction of capital controls in June, shifting activity out of the shadow economy, according to economists at National Bank of Greece including Paul Mylonas and Nicholas Magginas.

The European Commission forecasts Greek GDP will contract 0.7% in 2016 before growing 2.7% next year, according to its winter economic forecasts published last week.

Earlier in 2015, the debt-ridden country left analysts flabbergasted when its GDP smashed through all expectations with an 0.8% surprise growth in the second quarter.

The country’s banks finished raising funds in November to fill a €14.4 billion ($16.25 billion) hole uncovered by the European Central Bank’s stress test. Far from boosting investors confidence, however, Greek bank stocks have plunged 87% in the months since.

Losses sparked by fresh uncertainty over the country’s bailout deal sent Piraeus Bank, the National Bank of Greece and Alphabank falling to their lowest level since 1990 earlier this week.