BRUSSELS (MNI) – Greece will enter its sixth year of recession in
2013 but will start to come out of it in the second half of the year,
leading to a modest expansion in 2014, the European Commission said
Wednesday in its Autumn Forecast report.

The Commission projected a 4.2% decline in Greek GDP next year,
driven by declining household income, as unemployment continues to rise
and wages fall. Austerity measures to cut the public deficit will
continue to weigh on domestic demand, while investment will remain
“heavily subdued” due to constrained lending and lingering political

Still, the anticipated contraction in GDP next year will be
considerably smaller than the 6% drop in activity forecast for this

Tough labor market reforms and the economic slump are putting
significant downward pressure on wages, with per employee compensation
expected to drop 6.8% in both 2012 and 2013, exactly double the 3.4%
slide registered last year.

Falling wages are in turn putting downward pressure on consumer
inflation. Consumer prices are expected to rise just 1.1% this year,
after 3.1% in 2011, and for the following two years they are projected
to plummet into deflation territory: -0.8% in 2013 followed by -0.4% in

At the same time, unemployment is seen peaking in 2013 at 24%,
after 23.6% this year. In 2014, it should decline to 22.2% the
Commission predicted.

That is in line with the Commission’s expectation that the turning
point of the recession will come in the second half of next year,
“leading to moderate growth of 0.6% in 2014.” That forecast is
predicated on “the return of confidence and investment, boosted by the
implementation of reforms under the economic adjustment programme, as
well as progress with major projects co-financed by EU funds,” it said.

“The drag exerted by consumption, heavily affected in 2013 by the
fiscal consolidation, is projected to fade,” the report said. The
rebound will also be aided by stronger net exports, driven by weaker
imports and “continuous improvement in the balance of trade in

With the new austerity measures currently before the Greek
parliament, equal to about 5% of GDP, the government hopes to achieve
primary budget balance in 2013. This would reduce the government deficit
to 5.5% of GDP in 2013 from an expected 6.8% this year. The shortfall is
projected to narrow further to 4.6%, in 2014. This presumably assumes
that Greece will be granted the two-year extension it is seeking to
reach its targets, since otherwise Greece was expected to bring its
deficit down to the EU limit of 3% by 2014.

Greece’s debt ratio is seen hitting 188.4% of GDP next year, up
from 176.7% in 2012, then rising slightly further in 2014 to 188.9%.

–Paris Newsroom, +331-42-71-55-40;

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