World Economy

Greece Back in Recession

The IMF suggests that the Greek government’s debt to GDP ratio is unsustainable and that austerity measures were holding back growth. Government debt currently stands at around 179% of GDP
Greece’s economy shrank in the face of wrangling over a bailout deal for the beleaguered country.Greece’s economy shrank in the face of wrangling over a bailout deal for the beleaguered country.

A first-quarter estimate by statisticians has suggested the Greek economy has slipped backed into recession. The cash-strapped southern eurozone nation is facing fresh spending cuts—and more protests by workers.

Greece's national statistics office, Elstat, announced Monday its preliminary figures saw the eurozaone nation slither into recession again in the January to March period, with its gross domestic product dipping by 0.1% quarter on quarter, DW reported.

The marginal drop at the beginning of the year followed a more pronounced 1.2% decrease in GDP in the October to December period. For economists, two straight quarters in negative territory are enough to speak of a recession.

The European Commission last week lowered its growth outlook for the country, predicting the economy would grow by 2.1% in 2017, down from its previous forecast of a 2.7% annualized expansion rate. EU officials also revised downwards their 2018 growth expectation to 2.5% from 3.1%.

Talks between creditors on easing the country’s debt load are accelerating after Greece and officials from the International Monetary Fund and eurozone institutions ended a months-long impasse over the austerity measures the government needs to take. While that’s prompted a rally in Greek stocks and bonds this month, the delay has taken a toll on the economy.

That cost led the government to cut its GDP growth forecast for this year to 1.8% from 2.7% on Saturday. On an annual basis, Greek GDP in the fourth quarter contracted by 0.5%, ELSTAT said, from a 1.1% contraction last year.

In its spring forecasts published last week, the European Commission said it expected Greece's economy to rebound in 2017 but "looks set to remain moderate due to the delays in the closure of the [bailout] review."

IMF Needs More Time

The IMF said last week that it needed more time to agree a deal on debt relief for Greece, one of the conditions of the organization’s participation in the bailout.

The Greek government needs the bailout to make payments on bonds that mature this summer. However, the program was thrown into doubt in February when splits were revealed within the IMF.

The IMF suggested the Greek government’s debt to GDP ratio was unsustainable and that austerity measures were holding back growth. Government debt currently stands at around 179% of GDP.

The IMF’s suggestion that Greece should be granted debt relief by other creditors was rebuffed in the face of strong opposition from Germany, amongst other eurozone countries.

However, at the start of this month the Greek government secured a deal with creditors in return for further reforms to its economy, including more cuts to pensions and higher taxes.

The deal was broadly welcomed by investors, who bought Greece’s government debt at a rate not seen since 2014. The yield, which moves inversely to price, on a 10-year Greek government bond maturing in 2025 has fallen steeply in recent months, reaching a low of 5.65%, according to Tradeweb.

Bond prices, which move inversely to yields, have been driven upwards by the renewed confidence in the bailout deal from Greece’s creditors, and the consequent lower likelihood of the government defaulting.

Painful Reforms

Ending six months of bickering between the government and international creditors, a deal was struck last week on a new austerity package as a precondition for more financial aid from lenders.

The planned measures include pension cuts and tax hikes amounting to savings of €4.9 billion ($5.3 billion) annually.

But the package looks hard to sell to workers across the nations. The PNO ferry workers' union on Monday announced a 48-hour strike starting Tuesday. Not a single ferry is to depart from ports in the Aegean Sea during the stoppage, meaning that islands without an airport will effectively be cut off.

Greece has been warding off bankruptcy over the past seven years and is due to repay more than €7 billion to the European Central Bank and the International Monetary Fund in July.


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