World Economy

Greece Stuck in Recession

Greece Stuck in RecessionGreece Stuck in Recession

Greece’s economy will shrink 1% this year with the recession expected to deepen after a 0.3% contraction in 2015, an influential think tank IOBE projected in a quarterly report on Wednesday.

“There is a rational expectation that there will be growth in the second half, but this will not be enough to erase the recession which will turn out deeper than last year,” Reuters quoted IOBE Chief Nikos Vettas as saying.

“The IMF sees a 0.6% economic contraction this year, we think it will be a bit worse than that,” he said. “The longer the Greek economy stays unreformed, the more distant the end of the crisis becomes.”

The expected rebound in the second half, provided a crucial bailout review is concluded soon, could set the stage for more growth momentum in 2017, Vettas added.

Athens and its official creditors have yet to conclude a first review of compliance with reforms prescribed in the country’s third bailout, which will pave the way for debt relief talks.

The review of Greece’s progress on the terms of its bailout deal reached last July has dragged on for months, largely due to differences among its lenders over the country’s economic progress and resistance in Athens to unpopular measures.

In its quarterly report, IOBE said new fiscal measures to meet bailout targets will impact private consumption and employment in several sectors, leading to a decline in gross domestic product, despite a projected further rise in tourism.

“The expected rebound in 2017 will not happen if investment—the sick man of the Greek economy—does not rise,” Vettas said. Investment declined 13.2% last year.

The think tank expects unemployment to rise slightly to 25.2% this year from 24.4% in the last quarter of 2015.

About 74.3% of Greece’s 1.17 million jobless are long-term unemployed, meaning they have been out of work for more than 12 months. The rate is expected to stay around current levels this year.

While lower disposable income as a result of new fiscal measures will remain a deflationary factor, new indirect taxes will have a countervailing impact, leading to zero inflation or slight deflation this year, the think tank said.