–Adds Comments On Fiscal, Economic Affects Of Austerity Measures

By Angelika Papamiltiadou

ATHENS (MNI) – Greece is facing yet another year of sharp recession
with GDP expected to contract by as much as 5% in 2012, higher than
previously forecast, the Bank of Greece said in a report released today.

The central bank said the recession would weigh on the ability of
Athens to meet its fiscal targets.

The forecast is being revised only three weeks after the central
bank’s monetary policy report had said the economy would contract by
4.5% this year.

Greece has been in recession since 2008, and its GDP contracted by
a debilitating 6.9% last year.

“The recession is expected to be close to 5% in 2012, milder than
2011, but only provided that all structural reforms are implemented,”
the central bank’s report said. It attributed its new projection of a
bigger contraction to a slump in consumption and productivity, slower
overall business activity and a deterioration in the financial sector.

The report underlined that there is no time to waste in
implementing the country’s economic program, and it urged that after the
general election on May 6 the implementation process continue
immediately, echoing the fears of Greece’s leading European partners
that the elections could bring delays.

The Bank of Greece conceded that the bigger-than-expected recession
in Greece feeds into higher deficits, but argued that it is a mistake to
think the strict fiscal discipline is to be blamed.

“As long as the vicious cycle of fiscal contraction-recession-
uncertainty is being fed, our goal to meet our debt and deficit targets
becomes difficult,” the bank said. “Some blame it on the current fiscal
policy, but this is of course a mistake. Fiscal adjustment affects
general demand, but it also affects expectations. And positive
expectations could emerge if we shrink the public sector and continue
implementation despite political developments.”

The central bank said that in order to end the pernicious cycle, a
solid growth plan must be implemented alongside the budget cutting
process.

Apart from reiterating its call for further layoffs in the public
sector, the Bank of Greece also said that wages should be cut further in
order to boost competitiveness. It added that Greece is still missing
structural reforms that could boost productivity, services and the
business environment generally.

Regarding the Eurozone as a whole, the Bank of Greece said the
economy faces “a mild recession in 2012″ but that the economic risks are
on the downside and the forecasts could be revised should euro area
members face higher debts and higher commodity prices.

“The rebound of the global economy was affected at the end of 2011
by the uncertainty of the debt crisis in the Eurozone,” the bank said.
“Risks for the 2012 projections are high. Gross domestic product is
expected to slow down in emerging and developed countries.”

The central bank added that, “the Eurozone is entering into a mild
recession in 2012 but with high risks of deterioration if the debt
crisis flares up and if basic commodity prices rise further.”

–Athens bureau, a_papamiltiadou@hotmail.com

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